PORTFOLIO Stocks & equity markets

EU Tech Update

Downgrade Infineon, Indra and Worldline post outperformance
Following share price outperformance we downgrade Infineon, Indra and Worldline to Neutral from Buy. Our fundamental views are unchanged. We retain our structural positive view on Infineon given its exposure to dynamic growth areas such as Electric Vehicles and Autonomous Driving, but move to Neutral following outperformance vs. FTSE World Europe/EU Tech Hardware, and in the context of relative up/downside potential within our coverage. We expect Worldline to continue to benefit from structural and secular drivers in the European payments industry as well as participate in industry consolidation. We believe Indra’s self-help story remains on track with management focused on operational efficiency improvements and improved working capital driving free cash flow growth and balance sheet deleveraging. We make minor changes to estimates and while our PT is unchanged for WLN, it is modestly lower for IDR.

Raise price targets on ST Micro and Temenos, but remain Neutral
We raise our estimates for Temenos and continue to forecast robust growth – 11% revenue CAGR and 18% EPS (2016-21E). As a result, we raise our 12-month price target to CHF96. We believe Temenos remains well positioned to capture increased bank IT spending to 3rd party software vendors as banks look to digitize while lowering absolute costs. Valuation at 1.8x CY18E PEG appears full in our view and thus we remain Neutral on the shares. We raise our STM 12-month price targets to €16.3 (ADR $19.5) from €14.1 (ADR $16.0) driven by a higher target multiple and estimates.
We raise our price target multiple to 9.0x 2018E EV/EBITDA (from 7.0x), given an improved margin profile vs. its history. STM has traded at c.7x 1-year-forward EBITDA, with only lower single digit EBIT margins vs c.9.6% margins in 2Q17 (GSe 2018E EBIT margins at c.12%). We slightly lower our 12-month price targets for NOK and ERIC to adjust for FX.

Stock picks: SAP, Sage, Capgemini, Wirecard (all Buy, on CL)
We reiterate our Buy ratings on SAP, Sage, Capgemini and Wirecard (all are on the Conviction List) given a combination of structural and product cycle related growth or strategic appeal. We are also Buy rated on Nokia, Ericsson, ASML, Dassault Systemes, Simcorp and EVRY. We reiterate our Sell ratings on Ingenico and Software AG, both of which we view as structurally challenged and valuation remains uncompelling given lacklustre earnings growth.

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