Moving Pro Growth DB Research

1 December 2009
2010 Outlook
Moving pro-growth
This note details our index targets and

sector recommendations for the year
ahead. It also focuses on any relevant
themes that can help investors pick
stocks.
High capex / depreciation precedes

stronger sales growth
We are raising our end-2010 target for the DJ Stoxx 600 from 225 to 250 based on
the probability adjusted aggregation of different macro scenarios (pg16). These
scenarios take into account the large tail-risk in the system. The most likely
scenario by the end of 2010 (45% probability in Q4) is that economic growth is
sustained and the stimulus is withdrawn in an orderly way without disruption to
the market. On this basis (i.e. if we avoid the tail risks) we could be looking at a
Stoxx 600 YE level closer to 280. The main risk case (35% probability by 2010 YE)
is that bond yields sell off sharply either through fiscal or inflation concerns. A risk
premium of 5.25% coupled with a rise in bond yields to 5% could bring the
multiple down to below 11x (figure 23, pg17) and a Stoxx 600 level of 205.
Overall, we believe there is more scope for a better performance from equities
during H1, a period where the probabilities of the positive scenarios are at their
highest relative to the negative ones. A combination of higher sales growth and
margins points to a strong outcome for earnings. For example a 1ppt increase in
DB analysts current estimates for sales growth in 2010E combined with a 1ppt
increase in EBIT margins next year could produce earnings growth in the region of
+50% (figure 7, pg8). In the mid-90s and in 2002/3 investors were prepared to pay
high multiples for this level of growth (figure 17,pg15). For the end of Q1 we have
an index target of 260 for the DJ Stoxx 600 which equates to a multiple of 15.2x.
As the year progresses the risks increase which is why we think the market will
peak for the year in H1.
20
15
10
5
0
2009E
2007
2005
2003
2001
1999
1997
-5
1995
We also highlight a set of companies we would term sustainable growth to

protect against the macro risks. These are 20 companies put forward by our
research analysts (figure 15, pg13): Acerinox, Atlas Copco, Autonomy, BG,
BSkyB, Credit Suisse, G4S, Kone, Linde, LOreal, Nestle, Nobel Biocare,
Prudential, Reckitt Benckiser, SABMiller, Smith & Nephew, SSL, Telenet,
Tesco and Vedanta. In all of these cases growth is expected to last at least 5
years.
25
1993
2009s stock performance could be described as pro-recovery. Cyclicals have

outperformed defensives and companies with rising margin expectations have
seen their betas rise. For 2010 we look to move pro-growth and our focus in this
note is on companies offering the potential for top-line growth. Typically
companies with high capex / depreciation deliver stronger sales growth in the
following year - see figure 13 (pg11). Amongst others we would highlight the DB
Buy rated easyJet, Unilever, Accor and Daimler.
1991
Global Markets Research
European Equity Strategy
1989
Company
Europe
Market Update
Subsequent year sales growth (%) for

companies with HIGH capex/depr
Subsequent year sales growth (%) for
companies with LOW capex/depr
Source: Deutsche Bank, IBES, Datastream
Gareth Evans
Strategist
(+44) 207 545 2762
gareth.evans@db.com
Jim Reid
Strategist
(+44) 207 547 2943
jim.reid@db.com
Ingo Schmitz, CFA
Strategist
(+49) 69 910-31910
ingo.schmitz@db.com
We recommend overweight positions in oil, telecom, insurance, food & beverages

and retailers and underweights in banks, basic resources, autos and utilities
(pg24). As we enter the mid-cycle there is likely to be more differentiation
between cyclicals and defensives (figure 29, pg21). Historically, sharp rises in
bond yields have been accompanied by underperformance from financials and
outperformance from oil (figure 31, pg23).
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
1 December 2009
Table of Contents
Macro Overview...................................................................................................................... 3
Probabilities of our scenarios in 2010 ....................................................................................... 5
How our probabilities evolve over the course of 2010 ............................................................. 5
Moving pro-growth................................................................................................................. 7
A top-down sketch............................................................................................................ 7
Capex outlook ................................................................................................................... 8
Screening on capex/depreciation ...................................................................................... 9
Sustainable growth picks ........................................................................................................ 12
Market valuation ................................................................................................................... 15
Paying for growth............................................................................................................ 15
Scenario testing .............................................................................................................. 16
Dividends ........................................................................................................................ 18
Sector strategy...................................................................................................................... 20
Back to the cycle............................................................................................................. 20
Interest rate sensitivity.................................................................................................... 22
Sector recommendations........................................................................................................ 24
Investor positioning................................................................................................................. 25
1. Earning Trends .................................................................................................................. 26
2. M&A, Equity issuance and Fund flows ........................................................................... 27
3. DB European universe and sector aggregates ............................................................... 28
4. Value screens .................................................................................................................... 29
5. Earnings revisions............................................................................................................. 30
Important Disclosures..................................................................................................... 31
Analyst Certification ........................................................................................................ 31
Regulatory Disclosures ................................................................................................... 32
1. Important Additional Conflict Disclosures ................................................................... 32
2. Short-Term Trade Ideas............................................................................................... 32
3. Country-Specific Disclosures ...................................................................................... 32
Page 2
1 December 2009
Macro Overview
Jim Reid (+44 20 7547 2943)
As 2010 approaches we would have to say that the authorities deserve very high marks for
their achievements in 2009 after many years of benign neglect concerning the huge
imbalances that were building up around the world. The downside is that many of these
imbalances remain and there remains unfinished business in terms of the adjustments
necessary for us to feel more at ease with the financial world. The good news is that the
authorities may have managed to create a fresh economic cycle that will allow much of these
adjustments to be made over time or perhaps postponed until the next downturn. However
we remain in extraordinary times and we are highly dependent on the authorities repeating
their successes of 2009 over the next few years before we can say that the battle of the
Great Contraction was decisively won back in 2009. In reality if 2010 goes wrong its likely
due to mistakes by global authorities or from a Sovereign/Government bond market problem
somewhere in the world. The problems are unlikely to come from within the equity or credit
markets. This means the macro environment will decide 2010, and in reality investors in
Sovereign debt around the world will probably decide the fate of risk assets.
For 2010 we broadly see the year following one of four possible scenarios. These scenarios
are explained below and we then assess what each might mean for equities, credit and rates
over the course of the year.
Scenario 1 This scenario is the most optimistic and is one where the authorities have
as good a year as they did in 2009. They likely keep stimulus extremely high in the
system without there being any noticeable consequences of their actions (e.g. rates at
the short and long-end stay low). Under this scenario we would expect equities to be
significantly higher, credit spreads be much tighter but with bond yields only edging
slightly higher as the authorities are seen to have firm control of inflation expectations
and may even be continuing to buy bonds.
Scenario 2 This scenario is the most likely and suggests that we start to see gradual
easing off the gas from the authorities but only as its proved that there is some
momentum in the underlying economy. Under this scenario risk assets have a good year
but returns are checked to some degree by rising bond yields and less stimulus being
injected into markets. A satisfactory year for risk, especially equities, but a mildly
negative one for fixed income. Credit investors will likely have to rely on spreads (and
higher beta credit) to get positive total returns.
Scenario 3 This is the second most likely scenario overall in 2010 but one that
potentially becomes more likely as the year progresses. Here we are likely to see sharply
higher bond yields start to disrupt the positive momentum in markets. These higher
yields could be either due to Government supply starting to overwhelm demand
(especially as the impact of QE, and similar schemes, wane), or because of inflation
fears. It seems unlikely that actual inflation will be a concern in 2010 but its quite
possible for expectations to become unanchored. We would also have to include the
potential for a Sovereign crisis somewhere in the Developed world within this scenario.
We would note that the higher yields in this scenario are not based on positive growth
momentum but by inflation/Sovereign risk. Such a scenario is incorporated in Scenario 2.
Scenario 4 This is the nightmare scenario of Deflation or in less extreme terms

perhaps a double-dip. Given that much of the world is currently still in negative YoY
inflation territory it is difficult to completely rule out even if we do live in a fiat currency
system and even if inflation is expected to return to positive territory in early 2010. For
deflation to be sustained we would probably need an exogenous event to hamper the
authorities ability to continue to successfully fight this credit crisis. Such events could be
Page 3
1 December 2009
a fresh banking crisis arising, a political backlash encouraging immediate increases in

economic regulation or withdrawal of stimulus, or possibly a Government bond/currency
sell-off that forces the authorities to aggressively reign in stimulus for fear of a sovereign
crisis. A Sovereign crisis outside the Developed world could also encourage this scenario
as there would be a flight to quality into Developed market bond market in spite of the
fact that these markets have their own large fiscal issues. Bond yields would eventually
rally strongly but risk assets would experience a very poor year. As time progresses this
scenario becomes less likely as the system gradually repairs itself and the authorities are
allowed more time to inflate the global economy. As we discuss in scenario 3, the more
likely risk scenario is inflation, especially as time progresses.
We have tried to simplify and narrow down the scenarios as much as possible to allow for
easy explanation but the reality is that there are many other permutations for the year ahead.
For example and as discussed above, within the worst case scenario we would have to
include a slightly less severe outcome where growth fails to show any momentum after the
stimulus starts to fade (a double dip perhaps?). If the authorities are unwilling or unable to
stimulate further then we could have a weak economy even if we don't see outright
deflation. This would likely be negative for equities/credit but the outcome would be unlikely
to be as negative as the -30% outcome.
The other big problem in differentiating between the two negative scenarios is with regards
to Sovereign risk. If we have Sovereign risk within the EM complex (e.g. Dubai) then Western
bond yields could rally strongly on a flight to quality basis. So an element of this risk is priced
into Scenario 4. However we are in a fairly unusual point in history where there is also an
increasing risk of a Sovereign crisis occurring in the Developed world at some point. The
fiscal deficits arising from this crisis have to be addressed at some point. If the market
eventually sees no credible medium-term way of certain Western countries balancing their
budgets and repaying their debts then we may see a large rise in Government yields. This in
itself could be enough to raise funding costs to levels that encourage a viscous circle.
Government
GSE/Agency
Financial
500%
350%
ABS
Household
Corporate
400%
300%
250%
300%
200%
200%
150%
Govt
Fins
Non-Fins
Q1-1996
400%
Q1-1993
Figure 2: UK Debt to GDP Ratios
Q1-1990
Figure 1: US Debt to GDP back to 1929
HouseHolds
100%
100%
Source: Deutsche Bank, Federal Reserve, The Statistical History of the US , from Colonial Times to the
Present, by Ben Wattenberg
Q1-2008
Q1-2005
Q1-2002
1929 1938 1947 1956 1965 1974 1983 1992 2001
Q1-1999
0%
Q1-1987
0%
50%
Source: Deutsche Bank, Office of National Statistics
Figures 1 and 2 helps understand why we are entering into unknown territory in terms of
Developed market debt. This chart simply shows the Debt to GDP ratio of the US and the UK.
The Government part of the deficit is starting to rise sharply in both regions and although it
looks within the range of historic observations we have to remember that Governments have
implicitly and explicitly backed the debt of other parts of the economy. This makes
Government liabilities potentially much larger. The hope is that growth rebounds strongly
enough for the Debt/GDP ratio to fall naturally over time. Such a scenario would also require
yields to stay low to facilitate such an adjustment. All we can say is that there are risks that
the deficits of such indebted countries at some point appear unsustainable to the market.
This is when far more difficult decisions than those made in 2009 would have to be made.
Page 4
1 December 2009
Probabilities of our scenarios in 2010

In Figure 3 we assign a probability to the four potential scenarios we laid out for 2010 and try
to work out what Equities, Credit and Rates may do under each scenario. The Government
returns then help us arrive at total return outcomes for credit.
Figure 3: 2010 Equity and Credit Scenario Based Return Forecasts
Outcome (Probability)
10yr US
Yield
Equity
EUR Credit
Stoxx 600 Price Return Total Return
USD Credit
GBP Credit
IG ER
IG TR
HY TR
IG ER
IG TR
HY TR
IG ER
IG TR
Scenario 1 (15%)
3.50%
315
30%
34%
6.6%
8.4%
16.2%
9.6%
11.1%
20.1%
12.0%
14.0%
Scenario 2 (50%)
4.00%
280
16%
20%
4.6%
5.0%
8.9%
6.1%
4.6%
10.3%
6.9%
8.2%
Scenario 3 (25%)
5.00%
205
-15%
-11%
0.6%
-4.1%
-5.3%
-1.8%
-9.2%
-7.0%
-3.3%
-12.3%
Scenario 4 (10%)
2.00%
170
-30%
-26%
-3.5%
0.8%
-6.4%
-9.1%
1.1%
-9.1%
-13.6%
-2.0%
Wtd Average Outcome
3.98%
255.5
5.6%
9.6%
3.1%
2.8%
4.9%
3.1%
1.8%
5.5%
3.1%
2.9%
Note: TR=Total Return; ER=Excess Return. Source: Deutsche Bank
With the uniqueness of the current recovery relative to those seen through history, these
forecasts encompass a relatively wide range of outcomes that we feel is appropriate in these
unusual times. Overall on a weighted probability of outcomes we think that 2010 will be a
year where yields rise, which leads to negligible (or negative) total returns in Government
bond markets. Credit spreads should tighten and show positive excess returns but their total
returns will likely be weighed down by higher Government yields. For Equities its not a
runaway year but a small increase plus dividends allows for total returns that just about
exceed that of IG and HY on a weighted probability of outcomes. Credit is certainly a lower
beta play on the recovery than equities from this starting point.
We should note that the weighted average of outcomes guide our forecasts but do not
exactly match them. In the more illiquid credit markets these averages do correspond to
expectations for returns by year-end but for the more liquid equity markets our year-end
target relies more on how these probabilities change over the course of 2010.
How our probabilities evolve over the course of 2010

Figure 4 provides a guide to how we think the probabilities of these scenarios will evolve
over the course of 2010.
Figure 4: Evolution of Scenario Probabilities through 2010
Average Prob
2010
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Scenario 1
15%
17.5%
15.0%
15.0%
12.5%
Scenario 2
50%
55.0%
52.5%
47.5%
45.0%
Scenario 3
25%
15.0%
22.5%
27.5%
35.0%
Scenario 4
10%
12.5%
10.0%
10.0%
7.5%
EPS
17.1
18.0
18.8
19.7
PE Ratio
15.3
14.3
13.5
12.7
Wtd Average
Stoxx 600 Level
261
257
254
250
Forecasts
Source: Deutsche Bank
What is quite clear is that the risk-positive Scenario 2 is most likely to occur relative to the
others in the early part of the year. Intuitively this is when we are most likely to see a
continuation of the near Goldilocks 'not too hot, not too cold' outcome. The economy will
hopefully still be recovering but with enough ambiguity about its sustainability to reign in
speculation about an imminent rates market sell-off. The most positive Scenario 1 is the
second most likely scenario in Q1 but the inflation fears/bond market sell-off scenario edges
into second place from Q2 onwards.
Page 5
1 December 2009
Although Q1 is when the probabilities of the most positive scenarios are at their highest,
perversely this is also the time that the worst case scenario is at its highest as well. We think
this because as it stands we are still flirting with deflation around much of the Western world.
We should pull out of it early in 2010 but we also have to accept that the economy would still
likely have a major bias towards deflation if the authorities were unwilling or unable (for
whatever reason) to provide a similar level of support as they have been doing in 2009. As
the year progresses this deflation risk should minimise as the authorities continue down their
current path. As such the risk of an inflation scare or fears about the fiscal situation probably
grows. With the way we look at the world, the gap between the most likely scenario and the
inflation fear scenario narrows substantially by Q4. The outcomes are not quite binary in Q4
but start to move in that direction.
Our 2010 DJ Stoxx 600 YE target (currently 242) is 250 (13.8x top-down earnings) based on
the probability adjusted aggregation of different macro scenarios. These scenarios take into
account the large tail-risk in the system. The most likely scenario by the end of 2010 (45%
probability in Q4) is that economic growth is sustained and the stimulus is withdrawn in an
orderly way without disruption to the market. On this basis (i.e. if we avoid the tail risks) we
could be looking at a Stoxx 600 YE level closer to 280. The main risk case (35% probability by
2010 YE) is that bond yields sell off sharply either through fiscal or inflation concerns. A risk
premium of 5.25% coupled with a rise in bond yields to 5% could bring the multiple down to
below 11x (figure 23, pg16) and a Stoxx 600 level of 205. Overall, we believe there is more
scope for a better performance from equities during H1, a period where the probabilities of
the positive scenarios are at their highest relative to the negative ones. For the end of Q1 we
have an index target of 260 for the DJ Stoxx 600 which equates to a multiple of 15.2x. As the
year progresses the risks increase which is why we think the market will peak for the year in
H1.
The reality is that we perhaps need to keep flexible and navigate the year month by month
and quarter by quarter. It does seem the biggest risk in Q1 and perhaps H1 is from a huge
policy mistake, more likely due to a withdrawal of stimulus, or from an exogenous shock. This
shows how dependant we are on the authorities and leaves a lot of power in the hands of a
few important people around the world. We also dont know whether the problems in Dubai
will escalate in the near-term and this is an additional reason the probability of the worst case
scenario is slightly higher in Q1. However the positive factors should outweigh the risks for
now. We would stress though that its impossible to fully analyse equity and credit markets
without being aware of the immense largesse that the authorities have been providing
markets in 2009.
In the following article we outline a pro-growth strategy which we think will help us to protect
against the many macro risks of 2010.
For a fuller macro overview of 2010 please see the full Macro Credit and Equity Outlook
entitled 2010 Outlook - A strong Q1, risks increase thereafter
Page 6
1 December 2009
Moving pro-growth
Gareth Evans (+44 20 7545 2762)
We would characterise stock performance this year as pro-recovery. Since the end of January
to the peak in mid-October, cyclical sectors have in aggregate outperformed defensive
sectors by 37% (exc. financials and/or basic resources +24%). As cost cutting has continued,
margins have been a key focus and cyclicals have seen the most comprehensive revival in
margin expectations, and through this been rewarded with a higher beta. In our note The
right kind of cyclical, 20 October 2009 we looked at discriminating across the cyclical group
on the basis of which cyclical had the operational leverage to match these upgraded margin
forecasts.
We believe it is now time to extend this to a pro-growth strategy focused on top-line
potential and in this we note we screen for stocks best placed to see a sustainable growth in
sales spanning both cyclicals and defensives.
A top-down sketch
Our economists are currently forecasting nominal GDP to grow by 2.6% in Euroland next
year and by 2.8% in 2011. Historically the multiplier between nom GDP growth and sales
growth is 1.6x in Euroland implying sales growth of 4.2% in 2010 and 4.5% in 2011. After an
8% decline this year, DB analysts are forecasting 3% sales growth in 2010 in Euroland.
In the UK our economists are forecasting nominal GDP growth of 3% in 2010 and 4% in
2011. The average multiplier of sales growth to nom GDP growth (since 1989) is 1-to-1 in the
UK and DB analysts are forecasting a modest 2% sales growth next year.
Figure 5: Euroland nominal GDP vs. Sales growth
Figure 6: UK nominal GDP vs. Sales growth
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
2011E
Euroland sales gth
2010E
2008
2007
2006
2005
2004
2003
2009E
Euroland nom GDP

Source: Wolrdscope, Deutsche Bank estimates
2002
2001
2000
1999
-10%
1998
-10%
1997
-5%
1996
-5%
UK nom GDP
UK Sales gth
Source: Worldscope, Deutsche Bank estimates
The combination of rising sales growth and rising margins points to a potentially strong
outcome for earnings in 2010. In the matrix below we have simulated the potential upside to
Pan-European earnings growth based on DB estimates. Currently DB analysts are forecasting
3.2% sales growth and 11.5% EBIT margin combining to produce 33% net income growth. If
we increase both by 1ppt then we could move to an earnings growth rate of closer to +50%.
Page 7
1 December 2009
Figure 7: Sensitivity of 2010E Pan-Eur earnings growth to different sales growth and margin assumptions
Sales growth (%)
EBIT Margin (%)
1.20
1.70
2.20
2.70
3.20
3.70
4.20
4.70
5.20
3.0
3.7
4.3
4.9
5.5
6.1
6.8
7.4
8.0
10.0
9.8
10.4
11.1
11.7
12.4
13.0
13.7
14.4
15.0
10.5
16.5
17.2
17.9
18.6
19.3
20.0
20.6
21.3
22.0
11.0
23.3
24.0
24.7
25.4
26.1
26.9
27.6
28.3
29.0
11.5
30.0
30.8
31.5
32.3
33.0
33.8
34.5
35.3
36.0
12.0
36.8
37.5
38.3
39.1
39.9
40.7
41.5
42.3
43.0
12.5
43.5
44.3
45.1
46.0
46.8
47.6
48.4
49.2
50.1
13.0
50.3
51.1
52.0
52.8
53.7
54.5
55.4
56.2
57.1
13.5
57.0
57.9
58.8
59.7
60.5
61.4
62.3
63.2
64.1
9.5
Source: Deutsche Bank estimats. Based on net income growth. Shaded areas represent DBs current bottom-up estimate
Capex outlook
How soon capex can recover is likely to be an important factor in determining the extent to
which sales can grow. From its peak, capex has been cut by 9% (based on the main
components of the DJ Stoxx 600). Construction and technology have seen the largest cuts.
Only oil & gas increased capex this year.
The outlook for capex next year is more differentiated between those that are still expected
to cut further, and those forecast to show growth. On DB estimates we are expecting capex
to grow in technology, retail, personal care, travel & leisure, chemicals and utilities.
Figure 8: Capex outlook by sector ranked by peak-to-trough change
DJ Stoxx sector
Peak-to-2009
2010E
Weight (2010E)
Constr & Matls
-57.1%
-24.8%
5%
Technology
-31.8%
4.6%
1%
Healthcare
-29.1%
-6.2%
1%
Retail
-23.5%
6.9%
5%
Pers & Hhold Gds
-21.9%
0.8%
2%
Travel & Leisure
-20.4%
0.6%
2%
Basic Res
-18.6%
-7.3%
8%
Industrial G&S
-17.8%
-4.8%
9%
Chemical
-17.4%
5.0%
3%
Autos
-16.8%
-1.7%
6%
Food & Beverages
-14.4%
-0.2%
4%
Telecom
-11.6%
-2.5%
13%
DJ Stoxx
-9.3%
-4.7%
100%
Media
-0.2%
-5.6%
2%
Utilities
0.0%
3.8%
21%
Oil & Gas
0.0%
-12.5%
19%
While the financing of capex remains in question, the need to increase capex is likely to hinge
on whether capacity has been destroyed during the recession. This could spur a more
immediate increase in capex going into economic recovery.
The data on capital stock is difficult to come by in Europe, but the ONS publish it for the UK
by sector. In 1992 total net capital stock (net of depreciation) fell by 1.3%. In figure 9 below
we show that the contributors to this by sector were wide-ranging, including financials, metal
production, machinery, construction, computer activities, leisure and food,drink & tobacco.
Only a handful of sectors bucked this trend.
Page 8
1 December 2009
2009 could be the same. The data on insolvencies from the Insolvency Agency (figure 10) is
indicating that we are on track to reach the heights of 1992 when the number of insolvencies
exceeded 24,000 companies. In 2Q09, manufacturing, construction and real estate were
showing the largest year-on-year increases in the number of insolvencies.
Figure 9: Change in UK net capital stock during 1992
25
Financial intermediation
Insurance & pensions
Metals and metal products
Machinery & equip
Construction
Computer activities
Hotels& restaurants
Food, drink & tobacco
TOTAL net capital stock
Manufacturing
Chemicals
Transport equipment
Paper, publishing & printing
Motor vehicles
Electricity, gas & water
-7.0%
Source: ONS
Figure 10: Total number of UK liquidations
20
15
10
5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
-3.0%
1.0%
5.0%
Total company liquidations (000s)

Source: Insolvency Agency (2009E is derived from annualising 2009Q2)
Of course, these insolvencies are largely unlisted smaller companies, and so the listed
companies can gain market share without having to invest. But capacity can be quickly
rebuilt, particularly in sectors where there are low barriers to entry and the listed companies
will still need to invest in order to hold on to any market share gains they may have derived
from the recession.
Screening on capex/depreciation
Companies with high capex/depreciation ratios will normally see stronger sales the following
year. This is the main finding of our back-test. For each year since 1989 we have split the
constituents of the DJ Stoxx into two equal halves after ranking by capex / depreciation and
then measured the median sales growth for these two sections the following year.
The results are shown in the chart below and the evidence is compelling. Companies with
high capex/depreciation typically deliver stronger sales growth than companies with low
capex/depreciation. Out of 21 years, only in 2 did this fail to work.
In figure 13 we show the DB Buy rated companies that on DB estimates have higher than
market levels of capex/depr for 2009E and positive sales growth for 2010E. We have split the
table according to UK, Europe exc. UK, mid & small cap and basic materials. We have
excluded utilities. We would highlight the likes of easyJet, Tesco, Serco, Nestle, Accor and
Daimler.
Page 9
1 December 2009
Figure 11: High capex/depr engenders higher sales growth

25.0
20.0
15.0
10.0
5.0
0.0
2009E
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
-5.0
Subsequent year sales growth (%) for companies with HIGH capex/depr
Subsequent year sales growth (%) for companies with LOW capex/depr
In the chart below we rank the Pan-European sectors according to their estimated sales
growth for next year on DB estimates and show their capex/depr for 2009E. The standouts
are inevitably basic resources and oil & gas but also retail which has both a high sales growth
forecast and high capex/depr.
Figure 12: Sector capex/dep 2009E vs. 2010E sales growth
2.5
12%
10%
2.0
8%
6%
1.5
4%
1.0
2%
0.5
0%
0.0
-2%
Sales gth 2010E
Capex / dep 2009E (rhs)
Page 10
1 December 2009
Figure 13: High capex/depreciation 2009E & positive sales growth 2010E
Capex / depreciation
Company
Rec
Close Price (local)
5-yr avg
2009E
Sales gth 2010E
easyJet
Buy
370.7
12.27
9.40
10.1%
Misys
Buy
208.3
3.02
5.82
16.9%
Tesco PLC
Buy
429
3.27
3.96
8.7%
Whitbread
Buy
1305
2.35
3.67
3.2%
Serco
Buy
521.5
1.30
2.40
10.0%
Autonomy Corp Plc
Buy
1440
1.43
2.20
20.8%
Unilever Plc
Buy
1792
1.64
1.56
4.0%
Acciona
Buy
86.85
8.15
12.86
13.2%
Mediaset
Buy
5.09
9.33
7.37
2.6%
Abengoa
Buy
19.885
6.67
5.66
24.6%
M6
Buy
17.345
7.87
5.33
3.0%
Cintra
Buy
7.32
8.68
4.78
7.1%
HHLA
Buy
26.63
2.14
2.27
9.0%
United Internet
Buy
9.01
1.21
2.18
14.4%
Nestle
Buy
48.29
1.89
2.13
2.9%
Colruyt
Buy
168.9
2.26
1.91
7.5%
Accor SA
Buy
36.15
2.99
1.79
5.1%
MTU
Buy
34.62
1.63
1.79
3.4%
Daimler
Buy
34.625
0.75
1.71
9.2%
JM
Buy
117.75
13.14
1.63
4.6%
Eutelsat Communications
Buy
21.775
1.02
1.62
6.0%
Orpea
Buy
30.21
9.96
7.97
12.7%
Alapis
Buy
0.46
28.57
5.37
12.0%
Delticom AG
Buy
24
4.31
4.97
15.8%
YOC AG
Buy
12.16
4.54
4.80
23.5%
Jumbo SA
Buy
8.4
4.44
4.06
11.6%
Playtech
Buy
406.75
4.99
3.96
9.1%
Korian SA
Buy
18.5
5.58
2.05
8.6%
XING AG
Buy
32.06
6.04
2.02
25.6%
Gruppo MutuiOnline
Buy
5.46
1.68
1.79
14.9%
Cairn Energy
Buy
3040
5.59
19.78
521.0%
Vedanta Resources
Buy
2305
5.00
5.90
15.9%
BG Group
Buy
1126
2.36
3.96
3.4%
Tullow Oil
Buy
1243
2.32
3.66
4.9%
Tecnicas Reunidas S.A.
Buy
36.7
3.34
3.66
15.7%
Saipem
Buy
21.8
3.25
3.56
2.2%
Galp Energia
Buy
12.3
2.37
3.07
4.4%
Motor Oil
Buy
10.6
4.25
3.04
2.2%
Premier Oil Plc
Buy
1112
1.97
2.57
12.0%
Royal Dutch Shell Plc
Buy
1769
1.67
2.23
9.6%
Alliance Oil Company
Buy
101.5
4.08
2.05
3.0%
Rio Tinto
Buy
3089.5
2.15
1.73
8.1%
AMEC Plc
Buy
793
2.43
1.58
9.7%
Acerinox SA
Buy
13.925
1.85
1.51
56.5%
UK
Europe exc.UK
Mid & Small cap
Basic materials
Source: Deutsche Bank. Close 27/11/09
Page 11
1 December 2009
Sustainable growth picks

There are cyclical and non-cyclical approaches to moving pro-growth. So far we have
concentrated on the cyclical with a focus on capex, but the more classical approach to buying
growth is to screen for companies where sales growth is not wholly dependent on the
progress of the economic recovery - companies that can offer sustainable or structural
growth. This allows us to get exposure to top-line growth but without the macro risk and
2010 is not devoid of macro risks.
It is worth noting that between March and October this year, according to MSCI European
growth stocks have underperformed value stocks by 19% (see figure 14).
Figure 14: EU growth stocks / value stocks during 2009
0.85
0.83
0.81
0.79
0.77
0.75
0.73
0.71
0.69
0.67
0.65
1/09
2/09
3/09
4/09
5/09
6/09
7/09
8/09
9/09
10/09
11/09
Growth / Value
Source: MSCI, Datastream
We have screened for growth stocks simply through consultation with DB analysts. We
asked them to recommend a sustainable growth pick and frame their contribution around the
following 4 questions:
1)
What in your opinion is the sustainable growth rate in sales?
2)
What are its main drivers? Specific details on product category or business division or
geographic exposure.
3)
How long is this growth expected to last? More or less than 5 years?
4)
Does the current valuation account for this growth potential?
We recommend 20 companies, and the answers to these 4 questions are summarised in the
table below. A valuation table for these companies is also given below.
Page 12
1 December 2009
Figure 15: DB sustainable growth picks

Qn1: What is the
sustainable growth
rate in sales?
Qn2: What are its main drivers?
Qn3: How long is this growth Qn4: Does the current

expected to last?
valuation account for this
growth potential?
Acerinox
7 to 9%
Global share gains and substitution for stainless more than 10 years
steel
No
Atlas Copco
5%
High exposure to emerging markets and

commodities (mining equip 22% sales)
More than 5 years
No trading in line with sector

average
Autonomy
15%
Provides solutions for using unstructured data

in enterprises. High quality data-mining and
search solutions.
3 to 5 years at least
Not fully
BG Group
6 to 8%
Brazil and Australia.
Till at least 2020
No. We believe BG should

command a 40-50% premium
to UK oil majors.
BSkyB
6 to 7%
Customer growth and HD driving average

revenue per user up.
more than 5 years
No, valuation in line with sector
Credit Suisse
8 to 9%
Global wealth creation within the private bank.

Over the next 5 years CAGR in the region of
20% pa at the EBIT level.
Cyclical recovery in operating

7x our 2011E adjusted EPS
margins should last for 5 years. forecast of CHF 8.2
Wealth growth longer.
G4S
6%
Double digit growth in government business

and new markets.
at least 5 years
Kone
Up to 5%
Higher margin maintenance operations (60% of Maintenance business more

sales). Winning market share in Asia in the new than 5 years
equipment business.
Cheap compared to European

Capital Goods sector.
Linde
7%
Emerging markets; Energy megatrends
More than 5 years
No. 25-30% discount to global

peers
L'Oreal
6%
Personal care is fastest growing staple

category. L'Oreal most successful player and
already ca. 40% of business in emerging
markets.
minimum 10 years
Up to 10 years of such growth

already factored in
Nestle
6%
Perfect category exposure and is slowly

internationalising.
More than 5 years

already factored in
Nobel Biocare
10-15%
Increasing adoption of tech by dentists and

labs, patient awareness, reimbursements and
geographic expansion
at least 5 years
No. Expected to benefit from

material structural change in its
markets
Prudential
15% up to 20%
Net inflows lifting AuM: between 15 and 24%

pa over the last 2 years depending on area +
emergence of profit in 5 Asian countries that
are still in start-up phase.
5 years, probably longer
No
Reckitt Benckiser
8%
Currently still seen as a household company.

But OTC now 1/3rd of company and could be
100% over next five years.
minimum 10 years

already factored in
SABMiller
8%
Increasing beer consumption per capita in key

emerging markets.
minimum 10 years

already factored in
Smith & Nephew
8%
Demographics (babyboomers approaching age at least 5 years

for requiring these products), new technology
30% discount to this potential
SSL
5%
Expect condoms business to grow 8% pa in

emerging markets leading to 30bp pa
improvement in EBITA margins.
Yes, but this is because of bid

speculations not because the
growth story is understood
widely.
Telenet
4 to 7%
ARPU doubles for users switching from analog 5 to 6 years

to digital TV + technology upgrades in mobile
and internet business.
No, trading below direct peers
Tesco
10 to 16%
High international growth in Asia and Europe + more than 5 years

services business.
No
Vedanta
12 to 15%
Well positioned in India which has lacked

significant exploration expenditure despite
being geologically prospective.
Partially but still many risks

priced in
more than 5 years, up to 10
5 to 6 years
No, about 15-20% cheap if G4S

returns to long-term growth
Page 13
1 December 2009
Figure 16: DB sustainable growth picks

Company Name
Recommendation
Acerinox SA
Buy
Close Price
14.235
Target Price
20
Atlas Copco
Buy
102.8
105
Autonomy Corp Plc
Buy
1449
2000
BG Group
Buy
1148.5
1275
BSkyB
Buy
544.5
625
Credit Suisse Group
Buy
54.4
77
G4S
Buy
247.7
288
Kone
Buy
27.77
31
Linde
Buy
83.37
90
L'Oreal
Hold
74
70
Nestle
Buy
48.62
60
Nobel Biocare
Buy
29.9
40
Prudential
Buy
650.5
660
Reckitt Benckiser
Buy
3216
3500
SABMiller
Hold
1809
1700
Smith & Nephew
Buy
586
700
SSL International
Buy
733
800
Telenet Group
Buy
18.505
22
Tesco PLC
Buy
434.75
480
Vedanta Resources
Buy
2357
2637
Page 14
1 December 2009
Market valuation
Paying for growth
There is little doubt that on occasion, investors are happy to pay up for growth and we could
be at one of those junctures now. The combination of rising sales growth and rising margins
can generate strong rates of earnings growth. Depending on whether you are looking at the
DAX, or CAC or FTSE, when earnings growth expectations hit very high levels during1993-95
and 2002/3 (prospective / trailing EPS) the prospective PE exceeded 15x, and the actual PE
settled 12-months later in the region of 16-20x. Current growth expectations are not as high
as those reached during these periods, but 12/13x looks modest particularly in the UK.
Figure 17: Historic guide to peak earnings growth expectations & multiples
DAX-30
CAC-40
FTSE 100
12m fwd EPS

growth exp
Prosp PE (x)
Trail PE (x)
Trail PE 12m
later (x)
Q1 94
61.4%
21.7
34.5
19.1
15.9
Q1 02
75.9%
23.7
42.6
Latest
34.1%
12.2
16.8
Q4 95
95.9%
15.0
13.2
23.0
Q3 03
46.9%
15.3
14.3
16.6
Latest
21.1%
12.0
14.8
Q1 93
24.2%
14.3
17.5
15.5
Q4 02
18.8%
17.8
21.3
21.4
Latest
19.9%
12.9
15.8
Source: Datastream
However, there are a couple of things that encourage us to be cautious of taking this at face
value. The first is that our top-down earnings growth forecast is underscoring the current
bottom-up expectations. Based on our economic forecasts, we are projecting earnings
growth of 20% in 2010 from the top-down. The second reason is the dependency on banks.
Looking at the change in aggregate earnings forecast by the consensus, banks make up 27%
of this growth in 2010 and 39% in 2011 (see figure 19).
It is also worth noting that, in terms of the level earnings, 2011E EPS for the DJ Stoxx is
expected to be greater than 2005 and 88% of 2007s peak earnings. Incidentally, for the S&P
the bottom-up consensus is forecasting a new peak in earnings for 2011.
Figure 18: Earnings growth expectations 2010E & 2011E
Figure 19: Sector contribution to earnings growth

40%
35%
30%
25%
20%
15%
10%
5%
0%
30%
25%
20%
15%
10%
5%
Contribution to chg 2010 earnings

Contribution to chg 2011 earnings
0%
2/08 4/08 6/08 8/08 10/0812/082/09 4/09 6/09 8/0910/09
2010E
Source: IBES. Based on DJ Stoxx 600
2011E
Source: Deutsche Bank, IBES, Based on change in aggregate net income..
Page 15
1 December 2009
Scenario testing
We believe that there are a number of risks surrounding the outlook for the market next year
and the index targets need to account for these. We describe 4 separate scenarios. These
are summarised in figure 20. To each of these scenarios we have assigned probabilities,
bond yields, yield curve movements, index levels and multiples.
Figure 20: Probability adjusted index target
Yield curve
Probability
(4Q10)
10-year bond
yield (%)
End 2010E PE (x)
DJ Stoxx 600
3.17
12.3
242
12.5%
3.25
16.0
315
Spot
Scenarios
1. "Sweet spot" persists
Remain steep
2. Base case: orderly

removal of stimulus
Bear flattening
45%
4.00
14.2
280
3. Inflation sparks early and

stimulus withdrawn quickly
Bear steepening
(at least initially)
35%
5.00
10.4
205
4. Deflation / risk aversion
Bull flattening
7.5%
2.00
8.6
170
12.7
250
Sum
100%
Source: Deutsche Bank, IBES. The bond yield is based on the German 10-year.
The first scenario is our most bullish where the sweet spot continues. QE is maintained
without threatening higher interest rates. Under this scenario the yield curve remains steep,
bond yields remain low and the multiple expands further settling at 16x by the end of 2010. In
figure 21 below where we show the change the probabilities during the course of the year
for each scenario, and in our view the probability of this scenarios falls from Q1 to Q4.
Therefore, the best period for the market is during H1.
The second scenario is in our opinion the most likely. It consists of an orderly withdrawl of
stimulus, bond yields rise, but not by too much, and the DJ Stoxx produces a 10% gain on
todays levels. We have assigned a probability of 45% to this scenario (having started the
year at 55%).
Scenarios 3 and 4 represent the downside risks with 3 being the most likely particularly later
in 2010. Scenario 3 is about inflation sparking earlier than expected and there is a more
abrupt withdrawl of stimulus which proves disruptive for financial markets which are currently
highly correlated. Specifically, we see a significant upside risk to bond yields. The speed of
this move is key. Equities might still be a better place to be than bonds, but a likely spike in
volatility would still drive the index level lower. Under this scenario we see the DJ Stoxx
falling to 205 and a sub-mid cycle multiple of 10.4x.
Figure 21: Quarterly profile
Scenarios
09 Q4
10 Q1
10 Q2
10 Q3
10 Q4
1. "Sweet spot" persists
17.5%
15.0%
15.0%
12.5%
2. Base case: orderly

removal of stimulus
55.0%
52.5%
47.5%
45.0%
3. Inflation sparks early and

stimulus withdrawn quickly
15.0%
22.5%
27.5%
35.0%
4. Deflation / risk aversion
12.5%
10.0%
10.0%
7.5%
EPS (index pts)
16.2
17.1
18.0
18.8
19.7
Index (DJ Stoxx)
265
260
257
254
250
PE
16.4
15.2
14.3
13.5
12.7
Source: Deutsche Bank, IBES. All and-quarter estimates.
Page 16
1 December 2009
Scenario 4 represents both deflation and a more general flight to quality brought about by
sovereign risk. Deflation is clearly the least likely risk, but still possible - we are after all only
seeing unprecedented levels of stimulus to head off this risk.
Figure 22 shows the still strong relationship between implied volatility and the prospective
PE. A multiple below 11x (consistent with scenario 3) implies a VSTOXX level of over 40
compared with the current 28.
Figure 22: DJ Stoxx forward PE vs implied volatility
5
90
80
70
60
50
11
40
30
13
20
10
15
0
11/06
2/07
5/07
8/07
11/07
2/08
5/08
VSTOXX implied volatility
8/08
11/08
2/09
5/09
8/09
11/09
+12m PE (x), rhs inverted
Source: Datastream
Scenario 3 would likely involve both a rising risk premium combined and a rising bond yield.
The sensitivity of the PE multiple to changes in these two is shown in figure 23 below.
Assuming an RoE of 11% (current DB 2009E for Europe exc. financials) and a dividend
payout ratio of 45%, then a bond yield of 5% and an ERP of 5.25% would imply a multiple of
below 11x. Currently the gap between the prospective consensus earnings yield and real
bond yields is indicating a risk premium of 4.5%. The 10-year average is 5.25%.
Figure 23: Sensitivity of the multiple to changes in risk premium and bond yields
ERP (%)
10-year bond yield
(%)
4.75
5.00
5.25
5.50
3.5
20.5
18.4
16.7
15.3
4.0
16.7
15.3
14.1
13.0
4.5
14.1
13.0
12.2
11.4
5.0
12.2
11.4
10.7
10.1
5.5
10.7
10.1
9.6
9.1
Source: Deutsche Bank. Assuming RoE of 11% and payout ratio of 45%
Going back to figure 20, the aggregate weight of probabilities across the 4 scenarios gives an
index target of 250 for the DJ Stoxx. This is our new target for the end of 2010 (previously
225). On a top-down EPS forecast of 18.1 (+20%) this puts the DJ Stoxx on 13.8x 2010. The
related local index targets are shown in figure 24. Note we are not making any explicit
country preferences.
Page 17
1 December 2009
Figure 24: Index targets

Index target
PE
EPS gth 2010E
Spot
Q1
End-2010
2009E
2010E
DJ Stoxx 600
23.2%
243
260
250
16.6
12.7
DAX-30
27.1%
5686
6090
5860
17.0
12.6
CAC-40
27.4%
3721
3990
3840
16.1
12.0
AEX
68.6%
310
332
319
22.7
12.7
S&PMIB
24.3%
22205
23800
22890
16.1
12.2
IBEX
10.8%
11777
12620
12130
14.7
12.5
SMI
27.2%
6337
6790
6530
17.3
12.8
FTSE 100
26.0%
5246
5620
5410
17.5
13.1
Source: Deutsche Bank. Earnings growth and PEs are based on the IBES consensus.
Dividends
Before leaving the subject of valuation, it is worth touching on the subject of dividends.
Going into 2009 there was a lot of concern about the sustainability of dividends given the
pressures on refinancing and the economic slowdown. In fact 2009 has turned out a lot
better than expected.
Taking the UK as an example, only 22% of dividend announcements this year have been cuts
(see figure 27). The FTSE dividend future since its launch in May has risen by 38.5% (based
on the Dec10 contract).
Figure 25: Large cap dividend still exceeds bond yields
Figure 26: Market implied dividends for FTSE 100

190
180
170
160
150
140
130
120
98 98 99 99 00 01 01 02 02 03 04 04 05 05 06 06 07 08 08 09
Dividend yield of top 10 largest UK companies (%)
10-year UK gilt yield (%)
Source: Deutsche Bank, Datastream
5/09 6/09 6/09 7/09 8/09 9/09 9/09 10/09 11/09

Dec 10 dividend (index points)
Dec 11 dividend (index points)
Source: Bloomberg
While dividend yields and bond yields re-crossed in August for the market overall, large caps
still have a dividend yield in excess of the gilt yield. Figure 25 shows that the top 10
companies in the FTSE 100 by market cap have a dividend yield of over 4%. Therefore, large
caps still represent a significant pocket of value assuming cash flows remain resilient is
sectors such as oil and telecom.
Page 18
1 December 2009
Figure 27: FTSE 350 dividends in 2009

Number of dividend
announcements
Raised
Maintained
Jan-09
Feb-09
23
13
Mar-09
39
10
Apr-09
12
12
May-09
34
22
20
Jun-09
18
10
Jul-09
29
19
16
Aug-09
29
19
16
Sep-09
12
20
Oct-09
10
Total
210
116
91
50%
28%
22%
% of announcements YTD
Cut
Source: Company REFs, Markit
Page 19
1 December 2009
Sector strategy
Back to the cycle
With the overwhelming preference for cyclicals relative to defensives this year it is important
to qualify some of these performances in the context of the cycle. Since 1960 we have
isolated 7 complete cycles on the basis of the global OECD lead indicator in figure 28 below.
We highlight 3 growth phases of early, mid and late. The early cycle is taken just prior to the
trough in the lead indicator and captures the initial recovery. The late cycle covers the period
before and after the lead indicator peaks, and mid cycle is the period in between.
Figure 28: Phases of the cycle
103
102
101
100
99
98
97
96
Early Cycle
Mid Cycle
Late Cycle
OECD Global lead ind
We have measured the performance of European and UK sectors during these three phases
and in the tables below we show the top 10 and bottom 10 sectors by annualised absolute
performance for each phase across all 7 cycles.
During the early cycle, across both Europe and the UK we see outperformances from travel &
leisure, banks, autos and industrials. Utilities, telecom and non-life insurance typically
underperform. This is largely in line with what weve seen in 2009.
Moving into the mid cycle, which we are now on the verge of doing, we normally see better
performances from telecom, technology, media and aerospace and a weaker performance
from banks. During the late cycle, which we dont need to worry about yet, not surprisingly
oil, utilities, tobacco, pharma, food retail and food producers perform better, while retail,
media, travel & leisure, tech and autos underperform.
Page 20
1 December 2009
This time around, probably because of the rapid recovery in the lead indicator there has been
more a blend of early and mid-cycle sector performances, and in some cases such as retail
and leisure there was an aggressive move early on (end 08). Year to date, the largest returns
have been made in basic resources (+86%), banks (+52%), chemicals (+37%), industrials
(+32%) and retail (+32%). Utilities is the only sector to have fallen during the year (-4%). We
have also seen relatively weak performances from healthcare (+7%), travel & leisure (+8%),
telecom (+8%) and media (+10%).
Given that the mid-cycle is typically longer than the early and late cycles, there is scope for
more differentiation. For instance, technology, media and telecom may have room to perform
better.
Figure 29: Pan-European sectors and the cycle
Early cycle
Top 10
Avg ann
return
Bottom 10
Avg ann return
S/W & Comp Svs
24%
Oil/Eq Svs/Dst
Ind. Met & Mines
19%
Financial Svs
-15.1%
-3.8%
Auto & Parts
17%
Nonlife Insur
-3.0%
Leisure Gds
16%
Real Est Inv,Svs
-2.5%
Forestry & Pap
14%
Fd & Drug Rtl
-1.7%
Inds Transpt
13%
Life Insurance
-1.6%
Inds Eng
11%
Gen Retailers
0.0%
Chemicals
11%
Support Svs
0.3%
Oil & Gas Prod
10%
Fxd Line T/Cm
0.4%
Eltro/Elec Eq
1.2%
Electricity
8%
Mid cycle
Top 10
Avg ann
return
Bottom 10
Avg ann return
Support Svs
37%
Leisure Gds
12.7%
Mining
30%
REITs
13.6%
Aero/Defence
29%
Oil/Eq Svs/Dst
13.8%
S/W & Comp Svs
28%
Forestry & Pap
14.2%
Tch H/W & Eq
28%
Inds Transpt
16.0%
Real Est Inv,Svs
27%
Beverages
17.1%
Nonlife Insur
27%
H/H Gds,Home Con
17.4%
Travel & Leis
27%
Banks
18.2%
Media
26%
Personal Goods
18.3%
Financial Svs
26%
Ind. Met & Mines
18.4%
Late cycle
Top 10
Tobacco
Avg ann
return
10%
Bottom 10
Avg ann return
REITs
-27.1%
Gs/Wt/Mul Util
4%
Fxd Line T/Cm
-26.3%
S/W & Comp Svs
2%
Media
-26.1%
Oil & Gas Prod
2%
Auto & Parts
-25.6%
Chemicals
1%
Travel & Leis
-24.8%
Fd Producers
0%
Leisure Gds
-21.5%
Mining
-1%
Gen Retailers
-20.5%
Nonlife Insur
-1%
Tch H/W & Eq
-18.1%
Personal Goods
-2%
H/H Gds,Home Con
-17.7%
Pharm & Bio
-3%
Oil/Eq Svs/Dst
-17.1%
Source: Deutsche Bank, based on Datastream sectors
Page 21
1 December 2009
Figure 30: UK sectors and the cycle

Early cycle
Top 10
Avg ann return
Bottom 10
Avg ann. return
Tch H/W & Eq
47%
Oil/Eq Svs/Dst
-3.6%
Mining
31%
Gs/Wt/Mul Util
0.0%
Fd & Drug Rtl
27%
Fxd Line T/Cm
0.3%
Travel & Leis
22%
Nonlife Insur
1.1%
Financial Svs
21%
Eltro/Elec Eq
4.7%
Pharm & Bio
18%
Mobile T/Cm
5.0%
Support Svs
17%
Electricity
5.6%
Banks
17%
Life Insurance
5.7%
Aero/Defence
17%
H/C Eq & Svs
5.8%
Oil & Gas Prod
16%
Beverages
6.4%
Avg ann return
Bottom 10
Avg ann. return
Mid cycle
Top 10
Tch H/W & Eq
46%
Nonlife Insur
4.6%
Leisure Gds
41%
Banks
6.6%
Mobile T/Cm
29%
Fd Producers
7.1%
Mining
25%
Tobacco
7.9%
Fxd Line T/Cm
22%
General Inds
8.3%
Aero/Defence
22%
Gen Retailers
8.7%
Financial Svs
21%
Inds Transpt
8.8%
Oil & Gas Prod
20%
Beverages
8.8%
Support Svs
19%
Oil/Eq Svs/Dst
8.9%
Real Est Inv,Svs
17%
Media
9.4%
Late cycle
Top 10
Avg ann return
Electricity
Bottom 10
Avg ann return
11%
Tch H/W & Eq
-33.7%
Gs/Wt/Mul Util
7%
Fxd Line T/Cm
-32.1%
Tobacco
6%
Mobile T/Cm
-31.0%
S/W & Comp Svs
-1%
Auto & Parts
-24.2%
Fd & Drug Rtl
-1%
Oil/Eq Svs/Dst
-22.5%
Pharm & Bio
-2%
Media
-22.4%
Mining
-3%
Travel & Leis
-19.4%
Personal Goods
-3%
Eltro/Elec Eq
-18.2%
Nonlife Insur
-4%
Gen Retailers
-17.9%
REITs
-6%
Inds Eng
-17.8%
Source: Deutsche Bank, based on Datastream sectors
Interest rate sensitivity

As discussed in the market valuation section one of the big risks in 2010 could be a sharp rise
in bond yields. In figure 31 we have examined the sector correlations in both Euroland and
the UK during the last main period when bond yields rose sharply. Between Jan-99 and Feb00 the German 10-year bond yield rose from 3.70% to 5.59%. Between Feb-99 and Oct-99
the 10-year gilt yield rose from 4.18% to 5.83%.
During these periods weekly equity returns we negatively correlated with bond yields.
Financials seem to struggle the most. Oil & gas was the standout outperformer in Europe
and the UK during these periods.
Page 22
1 December 2009
Figure 31: Sensitivity to rising bond yields

Euroland: Jan-99 to Feb 00
Top 10
Bottom 10
UK: Feb-99 to Oct 99

Euro sector
Correlation of
weekly abs returns
Top 10
UK sector
Correlation of
weekly abs returns
Forestry & Pap
30.6%
Oil & Gas Prod
15.4%
H/H Gds,Home Con
15.5%
Fd & Drug Rtl
7.2%
Oil & Gas Prod
15.0%
Mining
6.9%
Ind. Met & Mines
13.7%
REITs
5.1%
Leisure Gds
11.4%
Travel & Leis
4.8%
Con & Mat
11.1%
Inds Eng
4.2%
Oil/Eq Svs/Dst
9.9%
Real Est Inv,Svs
3.6%
Chemicals
6.3%
Tobacco
1.0%
Inds Eng
5.3%
Oil/Eq Svs/Dst
0.2%
H/C Eq & Svs
3.1%
Leisure Gds
-0.9%
Euro sector
Correlation of
weekly abs returns
Bottom 10
UK sector
Correlation of
weekly abs returns
Nonlife Insur
-42.4%
Fd Producers
-27.2%
Electricity
-37.4%
S/W & Comp Svs
-28.7%
Banks
-35.6%
Investment Trust
-30.3%
Life Insurance
-35.2%
Fxd Line T/Cm
-30.6%
S/W & Comp Svs
-32.3%
Banks
-34.4%
Gen Retailers
-31.6%
H/C Eq & Svs
-35.8%
Fxd Line T/Cm
-30.8%
Pharm & Bio
-36.6%
Pharm & Bio
-29.9%
Mobile T/Cm
-43.9%
Eqt Ivst Ins
-26.3%
Life Insurance
-51.4%
Support Svs
-25.2%
Nonlife Insur
-57.2%
Euroland market
-28.8%
UK market
-37.3%
Page 23
1 December 2009
Sector recommendations
Overweight
Justification
Top pick
Bottom pick
Oil & Gas
Market expectations on cash flow are too negative. Failed to

participate in the rally.
BP
OMV
Telecoms
Highest dividend yield in the market at 6.7% (2010E). Do not

expect a big pick up in capex in 2010.
Vodafone
TeliaSonera
Retailers
Housing data has improved and interest rate expectations have Kingfisher
fallen. High street buoyant. Positive also on food.
Inditex
Food & beverages
A maintenance of high margins should sponsor a structural rerating. Supported by emerging market exposure.
Unilever
Pernod
Insurance
Renewed interest in the sector as insurance assets are put up

for sale. Attractive dividend yield.
Allianz
Munich Re
Neutral
Justification
Top pick
Bottom pick
Technology
Better outlook for semis than hardware, but limited valuation

headroom left.
ASML
Ericsson
Travel & leisure
Underperformed during 2H09 but earnings momentum trends

remain weak.
Accor
Intercontinental
Chemicals
Third strongest performer year to date. Destocking ended and

potential for some restocking in Q1.
Linde
Clariant
Industrial goods &

services
Margins have been successfully protected and supported by

exposure to China. Now expensive relative to market.
GEA
Volvo
Healthcare
Potential to perform 2H10 because of the sectors strong

defensive characteristics. Valuation attractive.
Novartis
AstraZeneca
Media
Scope to perform better during mid-cycle but structural

pressures continue to weigh on the sector.
WPP
Wolters Kluwer
Construction &
building materials
Emerging market exposure and expected to benefit from govt

spending in 2H10 in Europe and the US.
CRH
Saint Gobain
Underweight
Justification
Top pick
Bottom pick
Basic Resources
Vulnerable to a stronger Dollar in 2010. Restocking slowing in

China. Looking expensive.
Rio Tinto
Lonmin
Utilities
No strong valuation case and risk of rising bond yields. Power

prices remain weak. Only catalyst is regulatory.
RWE
Verbund
Banks
May have a good Q1, but seen the best of the steepening of
the yield curve. Further capital raising in US and Europe.
Negative correlation with oil.
Barclays
Commerzbank
Autos
Strong Q4/1 because of scrapage incentives and end of

destocking, but fall in volumes thereafter.
Daimler
BMW
Page 24
1 December 2009
Investor positioning
Figure 32: Europe Sector positioning
Active weight relative to benchmark (%)
October-09
September-09
August-09
Industrials
Information Technology
2.43
2.50
1.54
1.60
Consumer Staples
0.96
1.13
1.00
Health Care
Consumer Discretionary
0.13
Materials
0.67
0.07
-0.19
-0.40
Financials
0.19
-0.48
-0.70
Telecommunication Services
Energy
Utilities
1.48
-0.49
-1.25
-1.66
-2.0
-1.29
-1.0
0.0
1.0
2.0
3.0
Source: EPFR / Deutsche Bank calculations
Page 25
1 December 2009
1. Earning Trends
DJ Stoxx 600 earnings revision ratio
DJ Stoxx 600 consensus earnings growth forecasts
0.4
40
0.2
35
0.0
30
-0.2
25
-0.4
20
23.4%
-0.6
15
-16.9%
-0.8
10
1992
1994
1996
1998
2000
2002
2004
2006
respective years
21.3%
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
-1.0
1990
Expected earnings growth for
2008
2009
2011
Earnings revisions: Companies with 12-month-forward earnings (ups-downs) / total

Average
2010
12 month fwd EPS: Stoxx
Source: Thomson Financial, IBES and Deutsche Bank calculations
DJ Stoxx 600 forward PE ratio
Forward dividend yield vs. 10-year German bond yield
17
Latest PE ratios for

respective years
7
15.7
15
12.9
13
12.7
11
10.5
6
5
4
3
Stoxx dividend yield
German 10 year bond yield
Source: Thomson Financial and Deutsche Bank calculations
1M and 3M revision of 2010E sector earnings (%)
3M change in earnings uncertainty* (%)
Autos & Parts
Health Care
Basic Resources
Media
2.2
-3.9
Banks
Retail
Personal & Household Goods
Insurance
Construction & Materials
Food & Beverages
-10.1
Stoxx600
Chemicals
-10.2
Chemicals
Utility
Retail
Industrial G. & S.
Industrial Goods & Services
-5.8
-8.1
-12.4
-13.2
-13.8
Oil & Gas
Telecoms
-15.3
Travel & Leisure
Technology
-15.6
Technology
Health Care
-16.0
Telecoms
Food & Beverage

Oil & Gas
revision of 2010E earnings
Insurance
Media
-18.9
-19.0
-23.4
-29.5
Financial Services
revision previous three

months
Financial Services
Stoxx600
Personal & Household Goods
revision last month
Utilities
-33.6
Basic Resources
-34.4
Banks
Travel & Leisure
nm
Automobiles & Parts
-10
-5
10
15
20
25
30
-40
Page 26
Jan-09
Oct-09
Jan-08
Jun-09
12 month fwd PE: Europe (Stoxx)
Jan-07
Feb-09
Jan-06
Oct-08
2011
Jan-05
Jun-08
2010
Jan-04
Feb-08
2009
Jan-03
Oct-07
Jan-02
Jan-01
Jan-00
-35
-30
-25
-20
-15
-10
-5

*Measured as standard deviation of 12month fwd earnings estimates as percentage of earnings
1 December 2009
2. M&A, Equity issuance and Fund flows

M&A activity in Europe (incl. Private equity)
Equity Issuance in Europe

12%
5%
European M&A activity in
2009 is slightly stronger than
in 2008, but is till slightly
below historic average
4%
10%
1.6%
1.4%
1.2%
8%
3%
6%
2%
4.5%
Equity issuance at historic high following

several high value issues (especially
from Banks): HSBC (E13.6bn), HBOS
(E9.4bn), Llyods (E9.0bn) and Rio Tinto
(E8.2bn)
4.0%
3.5%
3.0%
1.0%
2.5%
0.8%
2.0%
0.6%
1.5%
4%
0.4%
Quarterly M&A as % of Mkt Cap (l.h.s)
Q1 2009
Q1 2008
Q1 2007
Q1 2006
Q1 2005
Q1 2004
Q1 2003
Q1 2002
Q1 2001
Q1 2000
Quarterly Equity issued as % of Mkt Cap (l.h.s)

Annual equity issued as % of Mkt Cap (r.h.s)
Annual M&A as % of Mkt Cap (r.h.s.)
Source: Thomson, Datastream and Deutsche Bank calculations

Datastream Total European Market index is used for Market Cap
Q1 1999
0.0%
Q1 1998
0.5%
0.0%
Q1 1997
Q1 2009
Q1 2008
Q1 2007
Q1 2006
Q1 2005
Q1 2004
Q1 2003
Q1 2002
Q1 2001
Q1 2000
Q1 1999
Q1 1998
Q1 1997
Q1 1996
0%
Q1 1995
0%
1.0%
0.2%
Q1 1996
2%
Q1 1995
1%
Share Buybacks in Europe
Cumulative 12M flow by assets ex ETFs (%of assets)
0.7%
1.2%
European share buyback
volume in 2009 at 15
year lows
0.6%
0.5%
1.0%
50%
Bond markets have seen clear inflows
over the last 6 months on the expense
of Money markets, but equity markets
have only remained stable
40%
30%
0.8%
20%
0.4%
0.6%
10%
0.4%
0%
0.3%
0.2%
0.2%
0.1%
-10%
Quarterly Share buybacks as % of Mkt Cap (l.h.s)

Annual Share buybacks as % of Mkt Cap (r.h.s)
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Q1 2009
Q1 2008
Q1 2007
Q1 2006
Q1 2005
Q1 2004
Q1 2003
Q1 2002
Q1 2001
Q1 2000
Q1 1999
Q1 1998
Q1 1997
Q1 1996
Q1 1995
0.0%
Dec-08
Nov-08
-20%
0.0%
Total Equity
International bonds
Corp. High Yield Bonds
Money Market bonds
US bonds
Emerging Bonds
Cum. 12M flow by equity regions ex ETFs (% of assets)
Flow into W. Europe Equity Funds ex ETFs (% of assets
20%
0.90%
Emerging markets is the only

regions with clear inflows over
the last 6 months
10%
European fund flows have been

trendless since April 2009
0.60%
0%
0.30%
-10%
US
Western Europe
Japan
Pacific
EM
Weekly flows as a % of NAV
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
Jan-09
Nov-08
Nov-09
Oct-09
Sep-09
Aug-09
Jul-09
Jun-09
May-09
Apr-09
Mar-09
Feb-09
-0.60%
Jan-09
-40%
Dec-08
-0.30%
Nov-08
-30%
Dec-08
0.00%
-20%
4-week average flows as a % of NAV
Page 27
DB European universe aggregates (ex financials)

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009E
2010E
2011E
Number of companies
P/E ratio Headline (x)
Headline EPS growth (%)
P/E ratio FD (x)
P/CFPS (x)
Dividend yield (%)
Dividend cover (x)
Price/BV (x)
50
20.5
-5.8
27.1
7.9
1.8
2.0
2.5
59
14.6
37.4
16.6
7.6
2.1
2.8
2.8
71
15.4
-0.5
14.7
8.0
2.5
2.8
2.1
89
19.2
3.3
19.5
8.1
1.9
2.7
2.6
111
18.3
39.6
17.0
8.9
2.3
2.5
3.0
144
21.7
9.9
22.5
10.6
3.9
1.1
3.5
177
33.9
3.9
47.2
23.1
1.3
1.7
5.7
257
17.9
38.6
22.6
13.8
1.9
2.3
2.5
309
23.1
-36.2
60.1
10.2
2.2
0.8
2.3
330
18.1
9.7
129.5
7.5
2.5
0.3
1.3
362
11.4
34.2
14.3
6.4
3.2
2.1
2.1
420
11.2
22.3
13.4
7.6
3.1
2.4
2.4
479
13.3
0.4
14.3
8.4
3.1
2.2
2.5
536
13.8
14.7
13.7
8.9
3.2
2.3
2.7
579
15.1
7.5
14.4
9.7
3.0
2.4
2.7
587
12.6
-6.0
16.6
7.7
3.5
1.7
1.7
582
15.1
-25.9
17.3
7.6
3.6
1.6
1.9
578
12.9
19.2
13.6
7.2
3.7
2.0
1.8
504
11.0
17.5
11.4
6.6
4.0
2.21
1.7
0.87
7.83
14.07
1.73
0.79
6.54
10.79
1.71
0.79
6.67
10.75
1.71
1.07
7.43
12.91
1.71
1.14
7.48
11.99
1.95
1.33
9.34
15.42
2.26
2.49
17.57
28.73
3.01
1.47
9.64
15.50
1.91
1.26
9.10
16.71
1.69
1.14
7.51
15.43
1.28
1.01
6.29
10.37
1.50
1.10
6.88
10.42
1.80
1.19
6.99
10.17
1.85
1.27
7.31
10.55
1.91
1.43
8.17
11.67
2.04
1.15
6.97
10.44
1.69
1.20
7.56
12.16
1.52
1.17
6.84
10.32
1.49
1.17
6.31
9.15
1.45
1.6
11.1
6.2
49.7
8.1
7.1
7.8
7.3
1.5
40.8
4.4
8.5
12.0
7.3
35.4
12.5
10.2
10.5
6.7
1.4
34.2
6.9
2.2
11.9
7.4
35.9
14.1
11.3
10.7
6.6
1.5
33.1
7.4
8.8
14.4
8.3
37.3
11.8
8.5
9.0
8.3
1.4
56.4
5.4
30.0
15.2
9.5
39.9
16.2
10.8
11.2
7.6
1.4
55.4
6.7
7.2
14.2
8.6
87.0
14.7
9.5
9.8
8.2
1.6
67.8
7.2
1.0
14.2
8.7
60.6
11.8
6.7
7.9
9.0
1.8
57.6
8.2
19.4
15.2
9.5
43.2
12.7
8.4
9.2
9.9
1.9
56.0
7.6
6.5
13.9
7.5
131.4
3.8
3.4
5.6
8.3
1.5
64.6
4.5
-0.2
15.2
7.4
321.1
1.3
1.6
4.0
7.4
1.3
46.0
4.6
-2.6
16.0
9.7
46.6
10.4
9.3
10.4
6.7
1.2
52.7
6.9
1.5
16.0
10.6
41.5
16.7
12.1
11.9
6.4
1.3
46.5
9.0
8.3
17.1
11.7
45.2
16.9
11.7
12.2
7.0
1.4
44.6
9.9
9.7
17.4
12.0
44.3
18.5
12.6
12.8
8.4
1.7
48.0
10.1
6.5
17.5
12.3
42.5
19.1
12.9
12.5
7.8
1.6
50.9
10.0
6.8
16.5
11.0
57.6
12.9
9.1
10.6
8.0
1.7
61.2
7.4
-11.1
15.9
9.9
62.2
11.2
8.1
8.7
8.2
1.5
59.6
5.4
2.9
17.1
11.3
50.9
13.8
9.7
10.1
7.6
1.4
52.7
6.9
5.4
18.6
12.8
45.3
13.9
11.1
16.5
6.7
1.3
46.5
7.3
EV/Sales
EV/EBITDA
EV/EBIT
EV/Operating Capital
Sales growth (%)
Op. EBITDA/sales (%)
EBIT/sales (%)
Payout ratio (%)
ROE (%)
Return on Capital (%)
Operating Return on Capital (%)
Capex/sales (%)
Capex/depreciation (x)
Net debt/equity (%)
Net interest cover (x)
Source: Deutsche Bank estimates
DB European sector aggregates

EV/OC
2009E
2010E
Automobiles & Parts

Basic Resources
Chemicals
Food & Beverage
Health Care
Industrial Gds & Services
Media
Oil & Gas
Personal & H'hold Gds
Retail
Technology
Telecommunications
Travel & Leisure
Utilities
Banks 1
Insurance 1
0.9
1.6
1.8
1.1
2.1
1.9
1.6
1.4
1.5
2.2
1.7
2.5
1.2
1.5
1.4
0.9
1.6
1.8
1.1
2.1
1.8
1.6
1.4
1.4
2.2
1.7
2.4
1.2
1.5
1.3
EV/Sales
2009E
2010E
0.4
1.9
1.3
1.0
1.9
2.0
0.9
1.6
0.9
1.9
0.5
1.3
1.8
0.9
1.7
0.4
1.8
1.2
1.0
1.9
1.9
0.9
1.6
0.9
1.8
0.5
1.3
1.7
0.8
1.7
EV/EBITDA
2009E
2010E
7.1
9.7
9.2
8.0
9.8
8.8
8.7
8.0
4.8
10.5
7.3
11.6
5.1
8.1
8.0
4.2
7.5
7.4
7.6
9.6
8.2
7.4
7.5
4.5
9.5
7.1
8.5
5.0
7.4
7.7
Div. Yield (%)

2009E
2010E
P/E 2
2009E
2010E
ROE (%)
2009E
2010E
0.9
1.7
2.6
3.0
3.1
1.6
2.5
4.1
4.5
2.7
3.4
2.2
6.1
2.7
4.8
2.3
1.6
2.9
3.0
3.1
1.8
2.7
4.4
4.6
2.9
3.4
2.4
6.5
3.1
5.0
NA
22.0
17.8
14.6
15.5
16.6
23.0
13.0
13.5
17.0
14.8
18.1
10.2
15.3
12.2
19.6
14.0
13.7
14.2
14.8
15.4
15.5
12.4
11.7
15.3
14.3
14.3
9.9
13.4
11.5
0.9
2.0
2.2
1.4
3.1
2.4
2.0
1.6
1.9
2.7
2.3
2.6
1.6
1.5
1.7
0.9
1.8
2.1
1.3
2.9
2.2
1.8
1.5
1.7
2.5
2.1
2.3
1.5
1.5
1.6
-4.4
7.8
8.7
9.4
18.5
12.1
7.3
10.2
14.3
14.4
13.9
8.7
13.3
11.0
14.3
4.5
13.8
12.9
9.2
19.3
13.0
11.6
10.8
15.4
16.1
15.4
16.0
15.4
11.1
13.8
2.0
3.8
2.6
4.2
21.2
8.6
13.8
7.8
1.6
1.5
8.4
17.4
11.2
15.0
Figures as at 25 Nov 2009, 1: Certain positions are calculated in a different way than for the other sectors. 2. Banks and Insurance P/E data are referred to Adjusted P/E.
P/BK
2009E
2010E
Data as at: 26 November 2009
1 December 2009
Page 28
3. DB European universe and sector aggregates
1 December 2009
4. Value screens
Screen 1: Dividend Yield Screen
Screen 2: Price to Book Screen
Screen Criteria: All Stoxx 600 Industrials under our coverage with FF Market
Capitalisation > 2 bn, Dividend yield 2010E > 5% and Buy recommendation
Capitalisation > 2 bn Price to Book 2010E < 1 and Buy recommendation
Model
Price
Company
Last
(local)
Local
updated
25/11/09 curr.
BAT
28/10/09
1915.0 GBP
BP
27/10/09
589.7 GBP
British Land Co Plc
28/10/09
467.5 GBP
Cable & Wireless
06/11/09
143.7 GBP
Enel
05/11/09
4.1 EUR
Fortum
22/10/09
17.1 EUR
GDF Suez
16/10/09
29.3 EUR
KPN
28/10/09
12.0 EUR
Mediaset
11/11/09
5.2 EUR
National Grid PLC
10/11/09
671.0 GBP
OPAP
11/11/09
16.5 EUR
Royal Dutch Shell plc
12/11/09
1861.0 GBP
RWE
02/11/09
63.1 EUR
Severn Trent
18/11/09
1006.0 GBP
Swisscom
11/11/09
392.3 CHF
Telefonica
13/11/09
19.5 EUR
Telekom Austria
16/11/09
11.9 EUR
Terna S.p.A.
11/11/09
2.8 EUR
Total SA
04/11/09
42.6 EUR
United Utilities
18/11/09
484.1 GBP
Vodafone Group Plc
11/11/09
139.0 GBP
PE (x)
2010E
11.7
11.1
17.1
10.8
9.5
11.9
12.4
10.3
15.6
11.8
7.0
11.7
9.2
10.1
10.3
9.5
12.1
15.3
10.1
8.4
8.7
P/BV
(x)
2010E
4.4
1.9
1.0
1.9
1.3
1.8
1.1
8.3
1.3
3.3
7.6
1.4
2.6
2.5
3.6
4.7
2.8
2.7
1.8
2.3
0.7
Div.
Yield
(%)
2010E
5.6
5.9
5.6
6.6
6.3
5.9
5.8
6.7
6.4
5.7
13.7
5.4
5.7
7.0
6.6
7.2
6.3
6.9
5.6
7.1
5.8
FCF
Yld.*
(%)
2010E
6.9
4.9
17.5
2.4
4.4
3.7
3.8
7.1
6.5
1.0
16.8
3.0
-2.6
0.3
6.6
7.2
10.4
-2.8
5.7
1.6
11.2
Model
Price
Company
Last
(local)
Local
updated
25/11/09 curr.
ArcelorMittal
29/10/09
26.4 EUR
Deutsche Lufthansa A 29/10/09
10.8 EUR
Hammerson
28/10/09
412.4 GBP
Home Retail Group
06/11/09
308.0 GBP
International Power
11/11/09
282.5 GBP
Investor
13/10/09
131.0 SEK
Logica
04/11/09
121.1 GBP
Renault SA
03/11/09
33.2 EUR
Telecom Italia
06/11/09
1.1 EUR
Vodafone Group Plc
11/11/09
139.0 GBP
Wolseley
18/11/09
1251.0 GBP
PE (x)
2010E
13.4
21.1
23.6
14.9
8.6
83.5
9.5
NM
8.8
8.7
21.7
P/BV
(x)
2010E
1.0
0.7
0.9
0.9
0.9
0.7
0.8
0.5
0.8
0.8
0.9
Div.
Yield
(%)
2010E
1.8
3.6
3.6
4.8
4.7
3.1
2.6
0.0
4.5
5.8
0.0
FCF
Yld.*
(%)
2010E
-0.4
-2.1
1.7
7.8
7.1
-0.1
6.0
8.2
7.2
11.2
8.0
* FCF Yield is calculated as the reciprocal of EV/FCF
Screen 3: Free Cash Flow Screen
Screen 4: CROCI Value Screen
Capitalisation > 2 bn FCF yield 2010E > 10% and Buy recommendation
Capitalisation > 2 bn CROCI Value = 1
Model
Price
Company
Last
(local)
Local
updated
25/11/09 curr.
AMEC Plc
25/11/09
796.0 GBP
British Land Co Plc 28/10/09
467.5 GBP
Land Securities
28/10/09
687.0 GBP
Novartis
13/11/09
55.9 CHF
OPAP
11/11/09
16.5 EUR
Sanofi-Aventis
13/11/09
52.2 EUR
Telekom Austria
16/11/09
11.9 EUR
Vodafone Group P 11/11/09
139.0 GBP
PE (x)
2010E
14.1
17.1
22.0
11.1
7.0
7.6
12.1
8.7
P/BV
(x)
2010E
2.4
1.0
0.7
2.3
7.6
1.5
2.8
0.7
Div.
Yield
(%)
2010E
2.5
5.6
4.1
4.3
13.7
4.6
6.3
5.8
FCF
Yld.*
(%)
2010E
10.7
17.5
10.2
10.6
16.8
13.3
10.4
11.2
Company
EADS
Nokia
Vivendi SA
Market
Price
Cap.
(local)
Local
(Euro mn) 25/11/09 curr.
5,050
12.3 EUR
32,956
9.0 EUR
24,012
19.7 EUR
EV/
CROCI NCI x Eco. P/E CROCI
x GW
GW
x GW Value
2010E 2010E
2010E 2010E
5.0%
0.8
15.8
1.0
16.7%
1.8
10.5
1.0
16.5%
2.3
13.8
1.0
Page 29
1 December 2009
5. Earnings revisions
Companies with strongest 1 month EPS upgrades
Companies with strongest 3 month EPS upgrades
2010E
S.
2010E
1M %
No. Company
Curr. Price
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
EUR
SEK
EUR
DKK
GBP
SEK
EUR
EUR
EUR
EUR
SEK
CHF
GBP
GBP
EUR
SEK
EUR
CHF
GBP
EUR
UPM Kymmene
Kinnevik Investment AB
Stora Enso
Jyske Bank
ITV Plc
Nordea
Aixtron
Metso
Natexis Banques Populaires
Umicore
Skandinaviska Enskilda
Clariant AG
Schroders Plc
HSBC
KBC Group
Svenska Handelsbanken
Software AG
Pargesa Holding AG
Croda
Wendel
9
108
5
NA
52
76
22
22
4
24
46
11
1222
732
32
197
70
87
774
39
1M
EPS change perf.

0.37
1.90
0.23
9.98
2.13
0.42
0.67
1.20
0.28
1.11
0.91
0.77
72.21
0.67
3.94
13.43
5.43
6.84
60.32
5.14
75.0
6.9
52.0 12.2
52.0
3.3
35.3
na
26.8
2.8
26.1
1.1
24.8
1.9
21.3
9.4
19.6 -3.7
19.4
5.4
17.4 -3.2
16.1
0.1
16.0
2.0
15.3
5.5
15.2 -8.8
14.8 -1.0
14.2
9.6
13.2 -4.4
12.7
3.1
12.3 -13.7
Source: Thomson Financial, IBES and Deutsche Bank calculation
S.
No. Company
Curr. Price
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
EUR
DKK
EUR
EUR
GBP
GBP
GBP
GBP
SEK
SEK
EUR
EUR
SEK
SEK
DKK
EUR
GBP
EUR
CHF
GBP
Aixtron
Jyske Bank
ASML Holding NV
UPM Kymmene
Persimmon
ITV Plc
Inchcape Plc
Michael Page
Nordea
Svenska Handelsbanken
Stmicroelectronics Nv
Metso
Electrolux
Volvo
Danske Bank
YIT
Antofagasta
Grupo Ferrovial
Clariant AG
Anglo American Plc
22 0.67
NA 9.98
20 1.05
9 0.37
437 9.16
52 2.13
31 2.30
338 4.67
76 0.42
197 13.43
6 0.17
22 1.20
176 14.04
70 1.36
114 4.96
14 0.82
901 1.09
31 1.09
11 0.77
2530 2.82
76.8 60.1
74.8
NA
69.6
8.7
57.8
4.8
56.0 -12.6
51.9
8.4
51.0
3.9
49.7
3.6
48.7
7.6
43.3 12.3
42.5
4.8
41.9 32.2
34.4 19.3
33.8 16.8
33.5 -13.2
33.5 43.6
33.1 19.2
31.4 26.5
30.2 32.0
29.8 32.1
Companies with strongest 1 month EPS downgrades
Companies with strongest 3 month EPS downgrades
2010E
S.
2010E
1M %
No. Company
3M %
3M
EPS change perf.
Curr. Price
1M
S.
3M %
EPS change perf.
No. Company
Curr. Price
3M
EPS change perf.
Deutsche Lufthansa
EUR
11
0.07
-51.7
-7.4
Deutsche Lufthansa
EUR
11
0.07
-54.4
0.7
Investor
SEK
127
1.24
-37.5
-1.9
Iberia Lineas Aer De Espana EUR
0.02
-51.0
21.1
Eramet Sln
EUR
222
6.05
-32.6 -16.3
CIE Generale De GeophysiqueEUR
Iberia Lineas Aer De Espana EUR
0.02
-25.1
-6.9
Investor
Lonza AG
CHF
81
5.69
-23.8 -25.7
CIE Generale De GeophysiqueEUR
14
0.46
-22.4 -13.8
Wienerberger AG
EUR
12
0.2
-22.3 -23.8
14
0.5
-33.3
-0.5
SEK
127
1.24
-32.8
-1.9
Lonza AG
CHF
81
5.69
-25.4 -25.8
K+S AG
EUR
40
2.32
-25.2
8.1
Wienerberger AG
EUR
12
0.18
-23.2
-7.2
K+S AG
EUR
40
2.32
-17.5
-1.2
A.P. Moller - Maersk
DKK 36200 1538.2
-21.8
9.7
Ryanair
EUR
0.21
-17.1 -15.3
Ryanair
EUR
-21.5
-8.4
NA
0.21
10
Salzgitter
EUR
63
3.86
-16.8
-8.7
10
Swiss Prime Site
CHF
NA
2.61
-19.7
11
Veolia Environnement
EUR
23
1.41
-13.2
-1.0
11
Marfin Investment Group
EUR
0.09
-18.8 -15.9
12
Cable & Wireless
GBP
138
12.93
-10.1
-1.2
12
Salzgitter
EUR
63
3.86
-17.8
-5.5
13
European Aeronautic DefenseEUR
13
0.95
-8.9
-7.8
13
Tullow Oil Plc
GBP
1260 12.85
-16.9
16.9
14
Capgemini
EUR
31
2.35
-7.1 -11.3
14
Aegon NV
EUR
0.44
-16.7
-6.9
15
Eurazeo
EUR
49
3.04
-7.0
-0.4
15
Banco Comercial Portugues EUR
0.08
-16.6
-3.3
16
Marfin Investment Group
EUR
0.09
-6.7 -22.5
16
Swiss Life Holding
CHF
128 13.16
-16.5
11.4
17
Aegon NV
EUR
0.44
-6.6 -17.9
17
Neste Oil
EUR
12
0.74
-16.4
8.0
18
Catlin Group Ltd
GBP
314
1.00
-6.5
-8.5
18
Veolia Environnement
EUR
23
1.41
-14.1
-0.3
19
Old Mutual Plc
GBP
118
14.56
-6.4
4.4
19
Cable & Wireless
GBP
138 12.93
-13.4
-1.6
20
Nexans
EUR
51
3.56
-5.7 -12.7
20
Standard Life
GBP
215 18.15
-12.4
13.6
Page 30
1 December 2009
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the
undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in
this report. Jim Reid
Equity rating key

Buy: Based on a current 12- month view of total share-holder
return (TSR = percentage change in share price from current
price to projected target price plus pro-jected dividend yield )
, we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder
return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out
and, based on this time horizon, do not recommend either a
Buy or Sell.
Notes:
1. Newly issued research recommendations and target prices
always supersede previously published research.
2. Ratings definitions prior to 27 January, 2007 were:
Equity rating dispersion and banking relationships
400
48%
43%
300
200
38%
29%
100
9%
37%
0
Buy
Hold
Companies Covered
Sell
Cos. w/ Banking Relationship
European Universe
Buy: Expected total return (including dividends) of 10%

or more over a 12-month period
Hold: Expected total return (including dividends) between
-10% and 10% over a 12-month period
Sell: Expected total return (including dividends) of -10% or
worse over a 12-month period
Page 31
1 December 2009
Regulatory Disclosures
1. Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
http://gm.db.com.
3. Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian
Corporations Act.
EU
countries:
Disclosures
relating
to
our
obligations
under
MiFiD
can
be
found
at
http://globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.
Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No.
117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in stock
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Page 32

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1 December 2009

This note details our index targets and

High capex / depreciation precedes

We also highlight a set of companies we would term sustainable growth to

2009s stock performance could be described as pro-recovery. Cyclicals have

Global Markets Research

European Equity Strategy

Subsequent year sales growth (%) for

We recommend overweight positions in oil, telecom, insurance, food & beverages

European Equity Strategy

Deutsche Bank AG/London

European Equity Strategy

Deutsche Bank AG/London

Scenario 4 This is the nightmare scenario of Deflation or in less extreme terms

European Equity Strategy

a fresh banking crisis arising, a political backlash encouraging immediate increases in

Figure 2: UK Debt to GDP Ratios

Figure 1: US Debt to GDP back to 1929

1929 1938 1947 1956 1965 1974 1983 1992 2001

Source: Deutsche Bank, Office of National Statistics

Deutsche Bank AG/London

European Equity Strategy

Probabilities of our scenarios in 2010

Stoxx 600 Price Return Total Return

Wtd Average Outcome

Note: TR=Total Return; ER=Excess Return. Source: Deutsche Bank

How our probabilities evolve over the course of 2010

Source: Deutsche Bank

European Equity Strategy

Deutsche Bank AG/London

European Equity Strategy

Figure 6: UK nominal GDP vs. Sales growth

Euroland sales gth

Euroland nom GDP

Source: Worldscope, Deutsche Bank estimates

Deutsche Bank AG/London

European Equity Strategy

EBIT Margin (%)

Constr & Matls

Pers & Hhold Gds

Travel & Leisure

Food & Beverages

Oil & Gas

Source: Deutsche Bank

Deutsche Bank AG/London

European Equity Strategy

Figure 10: Total number of UK liquidations

Total company liquidations (000s)

Deutsche Bank AG/London

European Equity Strategy

Figure 11: High capex/depr engenders higher sales growth

Sales gth 2010E

Capex / dep 2009E (rhs)

Source: Deutsche Bank

Deutsche Bank AG/London

European Equity Strategy

Close Price (local)

Sales gth 2010E

Autonomy Corp Plc

Tecnicas Reunidas S.A.

Premier Oil Plc

Royal Dutch Shell Plc

Alliance Oil Company

Mid & Small cap