| | | Sell (US$16.00 price target) | | UBS Research THESIS MAP | a guide to our thinking and what's where in this report | | | Q: What is the outlook for GenOn ahead of its 2017 debt maturity? We do not see any equity value for the non-recourse GenOn with the current cost/capital structure as it is generating significantly negative FCF and has substantial financing costs. NRG has disclosed that it intends to negotiate with the creditors and we believe addressing the solvency/liquidity... more→ Q: How will the PJM Capacity Auction impact NRG’s cash flows? Ultimately, we see NRG as among the widest "disadvantaged" in the auction for the IPPs (aside TLN), seeing pressures on its Eastern portfolio. Most of its GenOn revenue comes from capacity payments. Following the results of the auction we would not be surprised to see further retirements from NRG... more→ Q: What is the right valuation for conventional generation? We see a 7x forward EV / EBITDA as appropriate for conventional generation assets, down from 8x in prior years based upon the challenging commodity outlook, uncertainty around environmental liabilities, and concerns around useful asset lives. Further details are available in 'What's Priced In?' "How to Value Power?" 12/8/2015→ | | NRG Energy’s risk/reward skews negatively after the stock has nearly doubled off its January lows. NRG and peers have rallied as part of a bullish gas thesis but the market is overlooking the $285Mn decrease in PJM capacity revenue and the potential for continued weakness in PJM which represents 33% of capacity. While NRG may be appealing to investors bullish on natural gas pricing, the fact that ~40% of NRG’s capacity is in a FCF negative subsidiary reduces the true leverage to the thesis. | | We estimate that GenOn Energy will operate at a FCF deficit annually for the foreseeable future and is currently levered at ~9x net debt / adjusted EBITDA (~15x leverage including the present value of operating leases). Specifically we forecast -$220Mn average annual FCF deficit 2017-2020E for GenOn indicating that any renegotiation with creditors will likely have to involve a significant cut to the $193Mn services agreement which is still based on pre-2013 costs for GenOn when the company owned 40% more capacity. | | Based upon conversations with investors most are making some form of an adjustment for the negative drag from GenOn as it is a non-recourse subsidiary of NRG. We attribute a portion of the resiliency of NRG and other merchant power producers to continued investor bullishness around 2017 natural gas; however, we see NRG as less relevant for this thesis than peers.... more→ | | 
Value drivers | GenOn Drag (Add-Back) | EV / EBITDA | NYLD Valuation | ERCOT ATC Power vs Mkt. | | $22 upside | $0/sh | 7.9x | ~$16.50 | +$6/MWh | | $16 base | ~$3/sh | 6.9x | ~$15.00 | +$0/MWh | | $10 downside | ~$4/sh | 5.9x | ~$13.50 | -$6/MWh | | Source: UBS | | | | | |
more→ | | NRG Energy, Inc. (NRG) operates one of the largest independent power generation portfolios and retail electricity businesses in the US. NRG controls over 46GW of power generation... more → |
| | | PIVOTAL QUESTIONS | return ↑ | Q: What is the outlook for GenOn ahead of its 2017 debt maturity? UBS VIEW We do not see any equity value for the non-recourse GenOn with the current cost/capital structure as it is generating significantly negative FCF and has substantial financing costs. NRG has disclosed that it intends to negotiate with the creditors and we believe addressing the solvency/liquidity issues of the subsidiary is a top management priority with large maturities upcoming ($691Mn in 2017 and $650Mn in 2018). Specifically we see the subsidiary could be destroying equity value for the consolidated entity given the magnitude of its debt and operating lease obligations. EVIDENCE We estimate that GenOn Energy will operate at a FCF deficit annually for the foreseeable future and is currently levered at ~9x net debt / adjusted EBITDA (~15x leverage including the present value of operating leases). Specifically we forecast -$220Mn average annual FCF deficit 2017-2020E for GenOn indicating that any renegotiation with creditors will likely have to involve a significant cut to the $193Mn services agreement which is still based on pre-2013 costs for GenOn when the company owned 40% more capacity. WHAT'S PRICED IN? Based upon conversations with investors most are making some form of an adjustment for the negative drag from GenOn as it is a non-recourse subsidiary of NRG. Given the complexity of the situation there is the opportunity that NRG could extract additional value from its negotiation process but there is also the risk that NRG could face dis-synergies in a break-up scenario. |
|
What are the GenOn Risks from our vantage We emphasize management appears poised to pursue additional asset sales in coming periods, likely including one or two CCGTs as part of efforts to raise liquidity to address the 2017 maturity. NRG stated on its 1Q16 earnings call that it would negotiate with GenOn creditors in the near term and according to media reports (Bloomberg) NRG plans to hire a restructuring advisor to help in the efforts. The most significant uncertainty continues to revolve around the outlook for the non-recourse GenOn subsidiary. Raising $491Mn of proceeds from asset sales will help facilitate the negotiation but there is still $1.34Bn of obligations due in 2017/2018 that need to be addressed. Legacy services arrangement is a key area of attentionWe believe the intercompany support agreement could be renegotiated lower in the future following the recent asset sales and retirements. We expect the dynamic between creditors and management to intensify in coming months as focus on restructuring options for the highly-leveraged but non-recourse subsidiary grows. We emphasize management could pursue further asset sales in coming periods, likely including one or two CCGTs as part of efforts to raise liquidity to address the 2017 maturity. We expect creditors to push for a reduction in the size of its services payments back to the NRG Energy parent, with the current $193Mn based on pre-2013 cost structure when GenOn owned ~23GW versus ~16.5GW today. For example just in 2015 NRG retired Coolwater (636MW), Glen Gardner (160MW), Gilbert (98MW), and Werner (212MW). Additionally management mothballed Osceola (463MW), and sold Shelby (325MW), Seward (525MW), and Aurora (878MW). This remains the primary overhang on the stock beyond restructuring events. Discussions on the equity remain focused on how large this payment would be. Management did not elaborate on any plans around this—or any other tangible strategies at GenOn. We see a reduction in the G&A payment at least proportionate with the asset sales, if not materially more. The Street expectation for the new services payment is a wide range of $50-$150Mn but is consistently materially lower. The services agreement effectively allows GenOn to distribute cash back to the parent level when it would otherwise be restricted based upon its obligation covenants (operating leases) thus any reductions could likely reduce the parent’s capital available for allocation. The further question is how much of this allocated cost could be reduced in the event of a separation. Further, to what extent can asset sales reduce this overhead too? We emphasize the dynamic between the parent and GEN subsidiary could become more contentious as focus swirls around bidding practices in energy and capacity markets, as well as focus on the transfer of assets between the subsidiary and the parent (ex. leasing land to NRG for new Mandalay and Canal constructions). Creditor claims appear to be that the GenOn acquisition was structured to effectively extract cash from the subsidiary via 'above-market' services arrangements, rather than 'at-cost'. Further, we see other risks relating to NRG's relationship with GenOn including tax attribution (NOL benefits) and contracting/retail commitments. Other items to consider around GenOn:~40% of NRG’s assets sit in the GenOn complex. • Synergies and support agreement: NRG disclosed $200Mn of adjusted EBITDA synergies when announcing the GenOn transaction approximately three years ago and subsequently revised the target up to $340Mn (~10% of adjusted EBITDA). Aside from these delineated synergies from the transaction NRG has announced substantial cost savings initiatives in the following quarters which may not be directly attributable to the GenOn deal but are related to the broader fleet. NRG had 45,837MW of conventional generation as of 9/30/15 excluding NYLD assets of which 17,752MW are in the GenOn complex. In theory the $193Mn support agreement discussed above between NRG Corp and GenOn is a proxy for most of the O&M ‘dissynergies’; however, there are also corporate overhead costs to consider. In 2014 NRG reported $994Mn of corporate overhead ($695Mn G&A and $299Mn marketing & development) which represents $21/kW including GenOn or $35/kW excluding GenOn. Management expects to cut this by ~$55Mn in 2016 ($150Mn off of a 2015E base) but there is still significant overhead for the consolidated entity. Figure 1: NRG Deal Synergies ($Mn) | 
| Source: Company Filings |
• Asset diversification: As mentioned above, GenOn’s 16.5GW of capacity represents ~40% of NRG’s asset base and offers important diversification. GenOn is predominately focused on PJM and provides the dependable capacity revenue that the ERCOT assets do not. • Retail hedging and margins: NRG’s retail presence in the Northeast contributes less EBITDA than the Texas franchise but still helps management hedge the portfolio in the Northeast. How does a GenOn restructuring resolve itself? Principally in one of two ways – either NRG is able to provide a combination of parent debt and equity for existing notes or the debtors ultimately take the assets. What kind of combination would be palatable for a restructuring for NRG?Management at NRG continues to look at any kind of restructuring with GenOn as closely focused on maintaining reasonable credit metrics back at NRG Corp. As a consequence, the objective would be to limited recourse debt to 4.25x adjusted EBITDA. With GenOn seemingly north of 9x+ Debt/EBITDA using the valuation framework below, we expect that any exchange offer back to the parent would include a combination of debt and NRG common equity (or equivalent). Even assume the portfolio is acquired at a valuation of 6-7x EBITDA (below current trading value of bonds), this could still involve ~$600 Mn - $1Bn in total common equity ($2/sh or more not yet reflected in our valuation) assuming just 4x Debt/EBITDA is exchanged in the form of NRG debt. We do not expect management to transact near par given the meaningful dilution incurred vs. the core operations. Other Genon subsidiaries will eventually need addressing as well Further, with negligible value from the REMA and Mid-Atlantic leases regardless, we see a potential view that little in terms of cost allocation 'benefits' should be paid to GenOn Corp creditors (seeing they are still subordinated to these further layers of leverage). Bottom line, addressing the GenOn holdco notes is just the start. Moreover, disynergies potentially lost from retirements and loss of assets at these levels only add to the GenOn risk and timeline in future years. Secured debt capacity at GenOn Among the key levers remaining to address the forthcoming maturity in 2017 is untapped secured debt capacity which management has estimated at ~$700Mn at the GenOn Corp level and a further $200Mn at the GenOn Mid-Atlantic Generation (GAG) level. Given the challenging outlook we believe adding even secured debt could be an issue with a negative FCF profile. We emphasize even paying down 2017 with existing liquidity, 2018 is still likely the key challenge. What's the bottom line? We see clear downside to our SOP based on equity dilution from any restructuring and/or loss of cost allocation synergies originally contemplated in the GenOn acquisition. We nor Street reflects this risk in SOP.
What are the GenOn EBITDA and FCF profiles?Latest asset sales provides an operating cushion but the debt obligations still loom large in 2017/2018. GenOn is guided to be significantly FCF negative in 2016E based upon ~$180Mn of environmental and growth capex but we continue to see the subsidiary as FCF negative in 2017+. Interest payments are expected to decline by $28Mn YoY in 2016 due to the debt reductions over the last six months; any refinancing activity would further improve the cash flow outlook. Following the latest asset sales we now estimate that GenOn has enough cash on hand to cover the annual FCF deficits (but not the debt maturities) compared with our previous concerns about solvency in 2019E. We project that GenOn will enter 2017E with ~$800Mn of cash indicating that it has enough to meet the 2017 maturity but not ongoing FCF drag. Based upon this we expect management to address a solution for both the 2017 and 2018 obligations concurrently. We have further lowered our GenOn estimates for the asset sales and more detailed disclosures about which capacity cleared in each delivery year. Note that the Figure below has been adjusted for the latest asset sales and PJM capacity auction disclosures. We assume that uncleared capacity can realize $50/MW-Day and that capacity prices will increase $20-$30/MW-Day for the 2020/2021 PJM capacity auction. We estimate that Aurora generated $30-$50Mn of FCF which makes the ongoing profile significantly worse although we believe this was an accretive transaction. Further details are available here. Figure 2: GenOn EBITDA and FCF Estimates ($Mn) | 
| Source: Company Filings, Platts, PJM, SNL Energy, and UBS Estimates |
Non-Recourse Subsidiary Valuation: GenOn SOP Valuation using EV/EBITDA ApproachIn contrast to the $/kW valuation shown above, below we illustrate our estimate of subsidiary value that still paints a challenging picture for the assets. We emphasize the Discount multiples below are off of our baseline 7x EV/EBITDA valuation framework. We emphasize the Eastern PJM assets would appear a key opportunity. Figure 3: GenOn Mini-Model SOP | 
| Source: Company Filings, Platts, PJM, SNL Energy, and UBS Estimates |
For further information on GenOn and an alternative asset-level valuation approach please refer to Page 19.
| | | PIVOTAL QUESTIONS | return ↑ | Q: How will the PJM Capacity Auction impact NRG’s cash flows? UBS VIEW Ultimately, we see NRG as among the widest "disadvantaged" in the auction for the IPPs (aside TLN), seeing pressures on its Eastern portfolio. Most of its GenOn revenue comes from capacity payments. Following the results of the auction we would not be surprised to see further retirements from NRG (GenOn), Talen, FirstEnergy, and American Electric Power. EVIDENCE Over 60% of NRG’s PJM capacity is in GenOn and we estimate that the subsidiary’s capacity revenue will decline by $240Mn in 2019/2020 vs 2018/2019E, representing 85% of the decline in NRG’s capacity revenue. WHAT'S PRICED IN? Based upon feedback from clients, the Street expects PJM capacity prices to improve $50-$80/MW-Day in 2020/2021 but we expect improvement of only $20-$30/MW-Day. If non-ComEd capacity prices improve +$25/MW-Day in the upcoming auction that would drive ~$70Mn improvement in NRG’s capacity revenue for the 2020/2021 planning period; however, based upon market expectations for +$65/MW-Day, the Street is expecting a more robust ~$180Mn improvement. | |
Decline in GenOn cleared capacity will challenge already pressured subWhile it is difficult to determine exactly which units failed to clear the auction given the size of NRG’s fleet, we think the bulk of the assets are owned by the non-recourse GenOn subsidiary (~60%). For example in ATSI NRG only cleared 55% of its available capacity (New Castle or Avon Lake potentially uncleared). Looking at other regions the plants ‘on the bubble’ are primarily GenOn assets including Cheswick, Dickerson, and Chalkpoint once again. NRG management has stated it plans to negotiate with GenOn creditors and the latest reduction in capacity revenue only further reduces the enterprise value of the subsidiary. Figure 4: Capacity in PJM by Subsidiary (May 2016) | | Figure 5: Capacity Revenue in PJM by Sub. (2019/2020) | 
| | 
| Source: Company Filings and UBS Estimates | | Source: Company Filings and UBS Estimates |
Looking at ATSI, PEPCO, and RTO as GenOn negotiation draws closerManagement provided more detailed disclosures for its fleet performance as well as historical data dating back to the 2016/2017 delivery year. Overall NRG cleared 1,037MW less in the 2019/2020 auction versus the 2018/2019 auction. NRG has over thirty plants in PJM which makes it challenging to determine which plants did not clear but we present our thoughts below. We emphasize the limited quantity of MWs clearing in the RTO region indicate to us a clearly more bullish view on market prospects. Figure 6: NRG 2018/2019 vs 2019/2020 PJM Capacity Auctions | 
| Source: Company Filings and UBS Estimates |
We continue to note that capex injected into the Edison Mission Energy fleet likely drives ComEd separation. ComEd: The Edison Mission Energy (EME) portfolio continues to be a bright spot for NRG as capacity revenue actually increased due to more capacity clearing which offset the decline in pricing to $203/MW-Day from $215/MW-Day. As a reminder in 1Q16 NRG executed a forward capacity sale at Midwest Gen effectively pulling $253Mn of cash proceeds forward from multiple auctions through 2018/2019; therefore, approximately $290Mn (4.4% effective cost) of the ComEd capacity revenue cash shown in the Figure above will be included in 2016 FCF rather than the respective year. ATSI: NRG cleared only 552MW of its 1,012MW portfolio in the latest auction (55%) likely indicating that either the New Castle plant did not clear or that Avon Lake only partially cleared. In September 2015 management announced that it would continue operating Avon Lake Unit 9 on coal and pursue alternative MATS compliance rather than convert the plant. NRG intends to add natural gas firing capabilities to its New Castle plant with a Summer 2016 COD. The most significant decline in capacity revenue YoY is in PEPCO at the GenOn Mid-Atlantic subsidiary. Future Healthy Air Act impacts to the portfolio remain an overall risk to the GenOn portfolio as well. We continue to see clear risk of incremental Mid-Atlantic asset retirements. PEPCO: PEPCO represents over 60% of GenOn’s capacity revenue which is attributable to Chalk Point, Dickerson, and Morgantown. Although NRG only clears 83% of its capacity in the region, it appears that at least a portion of all the units clear. As we have highlighted previously Dickerson 1-3 and Chalkpoint 2 have SNCR NOx technology and could also be subject to further environmental spending for state-specific rules (MD Healthy Air Act). This continues to be a key area for concern as any new Maryland requirements which made it uneconomic to continue operations for the bulk of the capacity would have a significant negative impact on GenOn Mid-Atlantic. DPL: It appears that NRG cleared both its Indian River and Vienna assets; however, the EFOR adjustment appears to be above-average as ~20% of available capacity did not clear. These are rare PJM assets owned by NRG that are not inside of GenOn. RTO: The most significant decline YoY for NRG came in RTO where it only cleared 191MW versus 1,269MW last year. With only 191MW of capacity clearing in the region we think it is likely Brunot Island cleared rather than the larger Cheswick plant; regardless of which asset actually is receiving capacity revenue, both PA plants are owned by GenOn and the loss of capacity revenue will pressure the outlook even further. The detailed terms of the recent Aurora Generating Station sale were not disclosed but the $365Mn ($416/kW) purchase price was revised +$5Mn based on the outcome of the 2019/2020 PJM. Further details on the PJM auction are available in our notes below: 5/25 Generation Gap
5/26 Who Cleared?
5/27 Summary Presentation
5/31 Deal Time Approaches (P5)
Figure 7: NRG PJM Capacity Revenue by Delivery Year | | Figure 8: Summary of PJM Disclosures for TLN, DYN, NRG, CPN, PEG, FE, and EXC | 
| | 
| Source: Company Filings, PJM, and UBS Estimates | | Source: Company Filings, PJM, and UBS Estimates |
What is the expectations gap for 2020/2021?Essentially, the market participants we have spoken to expect PJM capacity prices to recover in the 2020/2021 auction but our expectations for improvement are more modest than most. We detail out our initial YoY walk below emphasizing that there is 18GW of cleared capacity from the previous auction that could attempt to clear in the next auction, thus suppressing prices. Investors continue to anticipate a lower level of new CCGTs to participate in the next auction following the disappointing $100/MW-Day clearing price but it is not difficult to envision a scenario where a small number of units with access to advantaged gas and premium spark spreads are able to enter the market. Figure 9: 2020/2021 PJM Auction YoY Walk | 
| Source: PJM and UBS Estimates |
For NRG specifically if non-ComEd capacity prices improve +$25/MW-Day in the upcoming auction that would drive ~$70Mn improvement in NRG’s capacity revenue for the 2020/2021 planning period assuming the same capacity cleared; however, based upon market expectations for +$65/MW-Day, the Street is expecting a more robust ~$180Mn improvement.
| | | PIVOTAL QUESTIONS | return ↑ | Q: How well positioned is NRG to benefit from improving natural gas prices? UBS VIEW NRG is certainly levered to a commodity recovery but has less potential upside than meets the eye and the market is now effectively embedding above-market commodity assumptions in shares at this price level. At $18/sh further upside for NRG is dependent on a commodity recovery. EVIDENCE Management guides to +$522Mn gross margin in 2018E for a +$0.50/mmbtu improvement in natural gas to ~$3.55/mmbtu; however, much of the margin improvement would be at the FCF negative, non-recourse GenOn coal portfolio. As a result, not all of the value would accrue to equity holders. WHAT'S PRICED IN? We attribute a portion of the resiliency of NRG and other merchant power producers to continued investor bullishness around 2017 natural gas; however, we see NRG as less relevant for this thesis than peers. Management likens itself as a synthetic 3.3 bcfe/day long position but ~16.5GW (40%) out of its ~43GW conventional generation portfolio sit in the FCF negative GenOn subsidiary which significantly reduces its gas optionality in our view. Additionally, while we view the retail business as a key asset (generates a disproportionate amount of consolidated FCF), this also dampens the gas bull thesis. |
| Figure 10: Henry Hub ($/mmbtu) | | Figure 11: TETCO M3 ($/mmbtu) | 
| | 
| Source: Platts | | Source: Platts |
Although forward natural gas prices have moved higher we have not seen the same response from power prices outside of Texas.
| | | WHAT'S PRICED IN? | return ↑ | Figure 12: Comparison of S&P 500 Sectors vs Utilities - IPPs | 
| Source: FactSet |
| We believe IPPs deserve a discounted valuation relative to other industries.
|
Based upon conversations with investors most are making some form of an adjustment for the negative drag from GenOn as it is a non-recourse subsidiary of NRG. We attribute a portion of the resiliency of NRG and other merchant power producers to continued investor bullishness around 2017 natural gas; however, we see NRG as less relevant for this thesis than peers. Furthermore, at $18 we believe investors are assuming that NRG’s levered FCF improves to ~$1.4Bn and remains approximately flat at that level from 2021-2030. What is the right multiple?We continue to use 7x EV / EBITDA in our valuation for most power markets including PJM and ERCOT which we continue to believe offers the best reflection of value for the underlying power plants, including optionality. Below we show a snapshot of NRG’s EME ComEd assets where we estimate 2017 NPV / EBITDA of 5-7x depending on the estimated duration of the asset’s useful lives. Figure 13: EME ComEd Assets NPV Analysis: Points towards 5-7x NPV / EBITDA | 
| Source: Company Filings, SNL Energy, Platts and UBS Estimates |
The average sector in the S&P is trading at 8.7x EV / EBITDA (FY3) excluding financials and IPPs – we believe IPPs deserve a material discount. To provide a bigger picture analysis we show where IPPs compare with other industries on an EV/ EBITDA (FY3) basis indicating that IPPs continue to have significantly more leverage than average (80% debt / EV) and return on assets (1%). Some investors have advocated that IPPS are worth 8-9 EV /EBITDA but we continue to believe that the industry deserves a structural discount to industries such as consumer discretionary, utilities, and IT (~8.5x) due to the high degree of commodity exposure and vulnerability to technological change (renewables, batteries, etc.) Diving further into the DCF analysisBelow we show ten- and fifteen-year DCF analyses for NRG Energy where we focus on the NYLD adjusted analysis. Using NRG’s 9.5% discount rate we calculate that the market is assuming that NRG can maintain its levered FCF at $1.4Bn from 2020-2030E. We estimate to achieve the same ~$18/sh valuation on a ten-year basis levered cash flows would have to improve 10% annually for 2021-2025E. Figure 14: NRG NPV Analysis: Assuming Flat FCF | 
| Source: Company Filings, FactSet, and UBS Estimates |
We estimate in an alternate scenario with just a 5% annual compounded decrease in FCF beyond 2020E NRG’s fifteen year DCF value declines to $15/sh. Figure 15: NRG NPV Analysis: Assuming 5% Annual FCF Growth | 
| Source: Company Filings, FactSet, and UBS Estimates |
Maintain $16 Price Target and Downgrade to SellValuation is based on a sum-of-the-parts analysis. Offsetting changed from our updated valuation include reduce share repurchase assumptions (~-$0.50), power mark-to-market (~+$0.35), and positive appreciation for NRG Yield (~+$0.15). Figure 16: Updated NRG Energy Valuation | 
| Source: Company Filings and UBS Estimates |
| | | UPSIDE / DOWNSIDE SPECTRUM | return ↑ | 
Value drivers | GenOn Drag (Add-Back) | EV / EBITDA | NYLD Valuation | ERCOT ATC Power vs Mkt. | | $22 upside | $0/sh | 7.9x | ~$16.50 | +$6/MWh | | $16 base | ~$3/sh | 6.9x | ~$15.00 | +$0/MWh | | $10 downside | ~$4/sh | 5.9x | ~$13.50 | -$6/MWh | | Source: UBS | | | | | |
| NRG is trading
at US$17.82
as of June 8th. |
Risk to the current share price is skewed 1:1.5 to the downside. Updated Adjusted EBITDA EstimatesOur EPS estimates are decreasing by 6% in 2017E and 14% in 2018E. Below we present our latest adjusted EBITDA estimates reflecting the commodities mark-to-market and NRG’s latest disclosures for the PJM auction. We assume that uncleared capacity can realize $50/MW-Day and that capacity prices will increase $20-$30/MW-Day for the 2020/2021 PJM capacity auction. Our 2016/2017E are little changed while 2018+decline more materially due to the lower PJM capacity prices. Figure 17: Updated NRG Energy Adjusted EBITDA Estimates | 
| Source: Company Filings, ThomsonReuters, and UBS Estimates |
Upside (US$22): Our upside case assumes that power prices reverse their intermediate-term trend of declining and NRG is able to capture stronger gross margins from its merchant power plants. If there is a sustained increase in power prices we can see a scenario where the GenOn subsidiary has positive equity value but this is not our base case. Base (US$16): Our valuation is based on a sum-of-the-parts analysis using an unchanged ~7x average EV / EBITDA multiple on the merchant generation segments and giving credit for the proportional ownership of the YieldCo NRG Yield. In the base case we exclude the estimated equity drag from GenOn (~$3/sh). Downside (US$10): Our downside case assumes that power prices continue their recent intermediate-term trend of declining and that merchant economics deteriorate. In this scenario we also assume that NRG Yield declines ~10% and NRG Energy’s ownership of the YieldCo would represent ~35% of total value due to the IPP business declining versus 25% in our base case.
dd ddddd
| | | COMPANY DESCRIPTION | return ↑ | Market Cap | US$5.6bn | Shares Outstanding | 315m (COM) | Industry | Utilities, Unregulated | Region | Americas | Website | www.nrg.com |
NRG Energy, Inc. (NRG) operates one of the largest independent power generation portfolios and retail electricity businesses in the US. NRG controls over 46GW of power generation capacity located primarily in Texas, California, and in the East. NRG also serves more than 2.7 million retail customers in 16 states, although its Reliant retail arm is concentrated in Texas. NRG Energy formed NRG Yield, Inc. (NYLD), which had its IPO in July 2013, and currently maintains voting control over the entity. Industry outlook .The electric utility industry is projected to experience weak or negative electric demand growth in coming years as a tepid economy and energy efficiency dampen demand. In the unregulated merchant power space, we see limited potential for a meaningful recovery from currently low power prices due to limited projected demand growth, growth of subsidized renewables, and potential for only modest further retirements. At regulated utilities, we believe rising interest rates and robust valuations are a challenge to the sector, particularly as earnings growth stalls once EPA-mandated growth capex slow mid-decade. We expect cost- cutting and strategic planning to be a key theme, with M&A at modest (at best) premiums designed to extract cost synergies. We believe utilities with high parent leverage will disproportionately suffer, as they are unable to recoup from rising interest rates | Capacity in PJM by Subsidiary (May 2016) 
Source: Company Capacity Revenue by Delivery Year 
Source: Company, UBS estimates |
| | | What about Asset-Level Valuation for GenOn?With many investors continuing to focus on the individual assets within the GenOn portfolio we include a full list with ascribed $/kW hypothetical values to provide a framework of value. Bottom line, we see the bulk of attributable from the Holdco assets, with no equity value remaining at either the GenOn Americas (former Mirant) or REMA subsidiaries. While investors are focused on restructuring of GenOn holistically, it is unclear how these separate pieces will be addressed. Looking at the values on a $/kW basis We see general downside to our $/kW valuations as repowering opportunities decline While we've ascribed $/kW valuations below, we continue to put emphasis on the limited FCF profile of these assets (pre-interest) and corresponding no equity value back to NRG back to the parent. The biggest valuation wildcards remain the assets at the holding company – and just how much its two CCGTs (Hunterstown and Choctaw) are worth – as well as value expectations for PJM coal assets (how high a multiple can be applied on limited EBITDA and FCF today?). Much of the value is tied to future capacity price expectations across the RTO footprint and ability to continue to convert them to gas (we understand efforts remain underway to Avon Lake for instance). We have historically viewed scrap metal value for plants at ~$15-20/kW for reference. Figure 18: GenOn Assets at the Holding Company | 
| Source: Company Filings, SNL Energy, and UBS Estimates |
What about the Subsidiary Value?Assigning value between the GenOn subs The corresponding question is what obligations exist in between the GenOn subsidiaries. We note the intercompany cash arrangement for GenOn Americas and the GenOn parent as a key area of scrutiny with ~$300 Mn held as of year-end. We emphasize this exact obligation remains uncertain. We see general downside to the Mid-Atlantic subsidiary given anticipated retirements of the Maryland Healthy Air Act – and retirements anticipated in the ~2020 period. Figure 19: List of GenOn Assets – Non Corp Assets | 
| Source: Company Filings, SNL Energy, and UBS Estimates |
Are the Americas and REMA Going Away Anyway?Despite the focus on the GenOn structure, we emphasize the two major subsidiaries within the GenOn complex may still yet be going away eventually once liquidity is exhausted at these subsidiaries as well. While there is no imminent maturity profile as there is with GenOn Corp, we still see this as relevant to the underlying concerns that the structure is largely underwater. How are the costs allocated? The question remains how the existing allocated costs are structured across the various GenOn sub-structures, whether via MWhs or via MWs. We emphasize irrespective of the ultimate outcome of the GenOn holding restructuring, we see a need to reduce the allocated costs to reconcile with potential loss of assets and further retirements of these assets. Figure 20: GenOn Mid-Atlantic – MW and MWhs | | Figure 21: GenOn Americas – MW and MWhs | 
| | 
| Source: Company filings, SNL and UBSe | | Source: Company filings, SNL and UBSe |
Figure 22: REMA – MW and MWhs | | Figure 23: GenOn HoldCo – MW and MWhs | 
| | 
| Source: Company filings, SNL and UBSe | | Source: Company filings, SNL and UBSe |
Figure 24: NRG Long-Term Debt Obligations: Still Trading Below Par, but off the lows for GenOn | 
| Source: Company Filings and UBS Estimates. Obligations as of 3/31/16 except Current Yield which is as of June 1st, 2016. |
Where are the GenOn Bonds trading?We include the latest trading value of bonds as we look towards any strategy from management on next steps. While management previously disclosed it engaged in open market purchases of its debt, the question is whether they will continue to do so at elevated valued. That said, with the 2017 maturity around the corner, the question remains what else to do aside for addressing this maturity pro-actively via a tender? Rally in GenOn debt just makes a restructuring that much more difficult We note expectations GenOn had been rallying prior to the PJM auction as creditors were increasingly organized to potentially work on a deal with the company after NRG disclosed it would begin negotiating with creditors of the non-recourse subsidiary. We emphasize the results put in doubt this portfolio’s leverage, adding to potential for a restructuring opportunity. That said, we continue to see the capital structure as requiring a substantial reduction in face value of leverage. Figure 25: GenOn Bond Prices: Continuing to Rally | | Figure 26: NRG Maturity Profile ($Mn) | 
| | 
| Source: FactSet | | Source: Company Filings |
| | | | | | | Forecast returns | Forecast price appreciation-10.0% | Forecast dividend yield0.7% | Forecast stock return-9.3% | Market return assumption5.8% | Forecast excess return-15.1% |
| Valuation Method and Risk Statement Risks for NRG Energy (NRG) include but are not limited to: (1) potential increases in environmental capital expenditures; (2) unfavorable commodity movements [natural gas, power, etc.]; (3) adverse political/legal/regulatory actions; (4) unfavorable weather; (5) operational and construction risk; (6) inability to access the capital markets on attractive terms; (7) declines in customer demand and population; (8) failure to close pending or prospective M&A transactions; (9) natural disasters or nuclear accidents; (10) losses at the retail marketing segment; (11) change in macroeconomics; (12) operational challenges at the nuclear and other assets; (13) inability to achieve synergy and other financial metrics; and (14) inability to meet debt obligations as due; and (15) other unforeseen changes.
Valuation is based on a sum-of-the-parts analysis.
Risks for NRG Yield (NYLD)include but are not limited to: (1) Inability to complete drop-downs in an accretive manner; (2) lack of access to capital markets for debt and/or equity; (3) changes to the dividend per share growth rate; (4) counterparty defaults on contracted assets; (5) cash flows from assets differing from historical expectations from changes in resources; (6) loss of value from natural disaster; (7) corporate conduct as many board members are also on NRG Energy's board; (8) unfavorable legislative or regulatory policies impacting renewable assets; (9) uncertainty around terminal value for contracted assets; (10) reductions in economic activity and end-user demand and (11) unforseen changes.
Valuation is based on an equal weighting of DCF and Yield approach. Required Disclosures This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act as principal in the debt securities (or in related derivatives) that may be the subject of this report. Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. UBS Investment Research: Global Equity Rating Definitions 12-Month Rating | Definition | Coverage | IB Services | Buy | FSR is > 6% above the MRA. | 49% | 32% | Neutral | FSR is between -6% and 6% of the MRA. | 38% | 26% | Sell | FSR is > 6% below the MRA. | 14% | 19% | Short-Term Rating | Definition | Coverage | IB Services | Buy | Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% | Sell | Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% |
Source: UBS. Rating allocations are as of 31 March 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with FINRA. Such analysts may not be associated persons of UBS Securities LLC and therefore are not subject to the FINRA restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. UBS Securities LLC: Julien Dumoulin-Smith; Michael Weinstein; Paul Zimbardo. Company Disclosures Company Name | Reuters | 12-month rating | Short-term rating | Price | Price date | NRG Energy Inc. | NRG.N | Buy | N/A | US$17.78 | 08 Jun 2016 | NRG Yield | NYLDa.N | Buy | N/A | US$15.84 | 08 Jun 2016 |
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 7.Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products and services other than investment banking services from this company/entity. 16.UBS Securities LLC makes a market in the securities and/or ADRs of this company. Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research. NRG Energy Inc. (US$) 
Source: UBS; as of 08 Jun 2016 |
NRG Yield (US$) 
Source: UBS; as of 08 Jun 2016 |
| Global Disclaimer This document has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. Global Research is provided to our clients through UBS Neo and, in certain instances, UBS.com (each a "System"). It may also be made available through third party vendors and distributed by UBS and/or third parties via e-mail or alternative electronic means. The level and types of services provided by Global Research to a client may vary depending upon various factors such as a client's individual preferences as to the frequency and manner of receiving communications, a client's risk profile and investment focus and perspective (e.g. market wide, sector specific, long-term, short-term, etc.), the size and scope of the overall client relationship with UBS and legal and regulatory constraints. All Global Research is available on UBS Neo. Please contact your UBS sales representative if you wish to discuss your access to UBS Neo. When you receive Global Research through a System, your access and/or use of such Global Research is subject to this Global Research Disclaimer and to the terms of use governing the applicable System. When you receive Global Research via a third party vendor, e-mail or other electronic means, your use shall be subject to this Global Research Disclaimer and to UBS's Terms of Use/Disclaimer (http://www.ubs.com/global/en/legalinfo2/disclaimer.html). By accessing and/or using Global Research in this manner, you are indicating that you have read and agree to be bound by our Terms of Use/Disclaimer. In addition, you consent to UBS processing your personal data and using cookies in accordance with our Privacy Statement (http://www.ubs.com/global/en/legalinfo2/privacy.html) and cookie notice (http://www.ubs.com/global/en/homepage/cookies/cookie-management.html). If you receive Global Research, whether through a System or by any other means, you agree that you shall not copy, revise, amend, create a derivative work, transfer to any third party, or in any way commercially exploit any UBS research provided via Global Research or otherwise, and that you shall not extract data from any research or estimates provided to you via Global Research or otherwise, without the prior written consent of UBS. This document is for distribution only as may be permitted by law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject UBS to any registration or licensing requirement within such jurisdiction. It is published solely for information purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this document (‘the Information’), except with respect to Information concerning UBS. The Information is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. UBS does not undertake to update or keep current the Information. Any opinions expressed in this document may change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS. Any statements contained in this report attributed to a third party represent UBS's interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. Nothing in this document constitutes a representation that any investment strategy or recommendation is suitable or appropriate to an investor’s individual circumstances or otherwise constitutes a personal recommendation. Investments involve risks, and investors should exercise prudence and their own judgement in making their investment decisions. The financial instruments described in the document may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates or other market conditions. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related instrument referred to in the document. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. The value of any investment or income may go down as well as up, and investors may not get back the full (or any) amount invested. Past performance is not necessarily a guide to future performance. Neither UBS nor any of its directors, employees or agents accepts any liability for any loss (including investment loss) or damage arising out of the use of all or any of the Information. Any prices stated in this document are for information purposes only and do not represent valuations for individual securities or other financial instruments. There is no representation that any transaction can or could have been effected at those prices, and any prices do not necessarily reflect UBS's internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions by UBS or any other source may yield substantially different results. This document and the Information are produced by UBS as part of its research function and are provided to you solely for general background information. UBS has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. In no circumstances may this document or any of the Information be used for any of the following purposes: (i) valuation or accounting purposes; (ii) to determine the amounts due or payable, the price or the value of any financial instrument or financial contract; or (iii) to measure the performance of any financial instrument. By receiving this document and the Information you will be deemed to represent and warrant to UBS that you will not use this document or any of the Information for any of the above purposes or otherwise rely upon this document or any of the Information. Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained in this document is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information. UBS relies on information barriers to control the flow of information contained in one or more areas within UBS into other areas, units, groups or affiliates of UBS. The compensation of the analyst who prepared this document is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues; however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part. For financial instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC) acts as a market maker or liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out in accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this document. For financial instruments admitted to trading on a non-EU regulated market: UBS may act as a market maker save that where this activity is carried out in the US in accordance with the definition given to it by the relevant laws and regulations, such activity will be specifically disclosed in this document. UBS may have issued a warrant the value of which is based on one or more of the financial instruments referred to in the document. UBS and its affiliates and employees may have long or short positions, trade as principal and buy and sell in instruments or derivatives identified herein; such transactions or positions may be inconsistent with the opinions expressed in this document. United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is distributed by UBS Limited to persons who are eligible counterparties or professional clients. UBS Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France S.A. UBS Securities France S.A. is regulated by the ACPR (Autorité de Contrôle Prudentiel et de Résolution) and the Autorité des Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this document, the document is also deemed to have been prepared by UBS Securities France S.A. Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht (BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional del Mercado de Valores (CNMV). Turkey: Distributed by UBS Limited. No information in this document is provided for the purpose of offering, marketing and sale by any means of any capital market instruments and services in the Republic of Turkey. Therefore, this document may not be considered as an offer made or to be made to residents of the Republic of Turkey. UBS AG is not licensed by the Turkish Capital Market Board under the provisions of the Capital Market Law (Law No. 6362). Accordingly, neither this document nor any other offering material related to the instruments/services may be utilized in connection with providing any capital market services to persons within the Republic of Turkey without the prior approval of the Capital Market Board. However, according to article 15 (d) (ii) of the Decree No. 32, there is no restriction on the purchase or sale of the securities abroad by residents of the Republic of Turkey. Poland: Distributed by UBS Limited (spolka z ograniczona odpowiedzialnoscia) Oddzial w Polsce regulated by the Polish Financial Supervision Authority. Where an analyst of UBS Limited (spolka z ograniczona odpowiedzialnoscia) Oddzial w Polsce has contributed to this document, the document is also deemed to have been prepared by UBS Limited (spolka z ograniczona odpowiedzialnoscia) Oddzial w Polsce. Russia: Prepared and distributed by UBS Bank (OOO). Switzerland: Distributed by UBS AG to persons who are institutional investors only. UBS AG is regulated by the Swiss Financial Market Supervisory Authority (FINMA). Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Limited, Italy Branch. Where an analyst of UBS Limited, Italy Branch has contributed to this document, the document is also deemed to have been prepared by UBS Limited, Italy Branch. South Africa: Distributed by UBS South Africa (Pty) Limited (Registration No. 1995/011140/07), an authorised user of the JSE and an authorised Financial Services Provider (FSP 7328). Israel: This material is distributed by UBS Limited. UBS Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. UBS Securities Israel Ltd is a licensed Investment Marketer that is supervised by the Israel Securities Authority (ISA). UBS Limited and its affiliates incorporated outside Israel are not licensed under the Israeli Advisory Law. UBS Limited is not covered by insurance as required from a licensee under the Israeli Advisory Law. UBS may engage among others in issuance of Financial Assets or in distribution of Financial Assets of other issuers for fees or other benefits. UBS Limited and its affiliates may prefer various Financial Assets to which they have or may have Affiliation (as such term is defined under the Israeli Advisory Law). Nothing in this Material should be considered as investment advice under the Israeli Advisory Law. This Material is being issued only to and/or is directed only at persons who are Eligible Clients within the meaning of the Israeli Advisory Law, and this material must not be relied on or acted upon by any other persons. Saudi Arabia: This document has been issued by UBS AG (and/or any of its subsidiaries, branches or affiliates), a public company limited by shares, incorporated in Switzerland with its registered offices at Aeschenvorstadt 1, CH-4051 Basel and Bahnhofstrasse 45, CH-8001 Zurich. This publication has been approved by UBS Saudi Arabia (a subsidiary of UBS AG), a Saudi closed joint stock company incorporated in the Kingdom of Saudi Arabia under commercial register number 1010257812 having its registered office at Tatweer Towers, P.O. Box 75724, Riyadh 11588, Kingdom of Saudi Arabia. UBS Saudi Arabia is authorized and regulated by the Capital Market Authority to conduct securities business under license number 08113-37. Dubai: The information distributed by UBS AG Dubai Branch is intended for Professional Clients only and is not for further distribution within the United Arab Emirates. United States: Distributed to US persons by either UBS Securities LLC or by UBS Financial Services Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a ‘non-US affiliate’ ) to major US institutional investors only. UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a document prepared by another non-US affiliate when distributed to US persons by UBS Securities LLC or UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this document must be effected through UBS Securities LLC or UBS Financial Services Inc., and not through a non-US affiliate. UBS Securities LLC is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule"), and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule. Canada: Distributed by UBS Securities Canada Inc., a registered investment dealer in Canada and a Member-Canadian Investor Protection Fund, or by another affiliate of UBS AG that is registered to conduct business in Canada or is otherwise exempt from registration. Brazil: Except as otherwise specified herein, this material is prepared by UBS Brasil CCTVM S.A. to persons who are eligible investors residing in Brazil, which are considered to be: (i) financial institutions, (ii) insurance firms and investment capital companies, (iii) supplementary pension entities, (iv) entities that hold financial investments higher than R$300,000.00 and that confirm the status of qualified investors in written, (v) investment funds, (vi) securities portfolio managers and securities consultants duly authorized by Comissão de Valores Mobiliários (CVM), regarding their own investments, and (vii) social security systems created by the Federal Government, States, and Municipalities. Hong Kong: Distributed by UBS Securities Asia Limited and/or UBS AG, Hong Kong Branch. Singapore: Distributed by UBS Securities Pte. Ltd. [MCI (P) 018/09/2015 and Co. Reg. No.: 198500648C] or UBS AG, Singapore Branch. Please contact UBS Securities Pte. Ltd., an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110); or UBS AG, Singapore Branch, an exempt financial adviser under the Singapore Financial Advisers Act (Cap. 110) and a wholesale bank licensed under the Singapore Banking Act (Cap. 19) regulated by the Monetary Authority of Singapore, in respect of any matters arising from, or in connection with, the analysis or document. The recipients of this document represent and warrant that they are accredited and institutional investors as defined in the Securities and Futures Act (Cap. 289). Japan: Distributed by UBS Securities Japan Co., Ltd. to professional investors (except as otherwise permitted). Where this document has been prepared by UBS Securities Japan Co., Ltd., UBS Securities Japan Co., Ltd. is the author, publisher and distributor of the document. Distributed by UBS AG, Tokyo Branch to Professional Investors (except as otherwise permitted) in relation to foreign exchange and other banking businesses when relevant. Australia: Clients of UBS AG: Distributed by UBS AG (Holder of Australian Financial Services License No. 231087). Clients of UBS Securities Australia Ltd: Distributed by UBS Securities Australia Ltd (Holder of Australian Financial Services License No. 231098). Clients of UBS Wealth Management Australia Ltd: Distributed by UBS Wealth Management Australia Ltd (Holder of Australian Financial Services Licence No. 231127). This Document contains general information and/or general advice only and does not constitute personal financial product advice. As such, the Information in this document has been prepared without taking into account any investor’s objectives, financial situation or needs, and investors should, before acting on the Information, consider the appropriateness of the Information, having regard to their objectives, financial situation and needs. If the Information contained in this document relates to the acquisition, or potential acquisition of a particular financial product by a ‘Retail’ client as defined by section 761G of the Corporations Act 2001 where a Product Disclosure Statement would be required, the retail client should obtain and consider the Product Disclosure Statement relating to the product before making any decision about whether to acquire the product. The UBS Securities Australia Limited Financial Services Guide is available at: www.ubs.com/ecs-research-fsg. New Zealand: Distributed by UBS New Zealand Ltd. The information and recommendations in this publication are provided for general information purposes only. To the extent that any such information or recommendations constitute financial advice, they do not take into account any person’s particular financial situation or goals. We recommend that recipients seek advice specific to their circumstances from their financial advisor. Korea: Distributed in Korea by UBS Securities Pte. Ltd., Seoul Branch. This document may have been edited or contributed to from time to time by affiliates of UBS Securities Pte. Ltd., Seoul Branch. Malaysia: This material is authorized to be distributed in Malaysia by UBS Securities Malaysia Sdn. Bhd (Capital Markets Services License No.: CMSL/A0063/2007). This material is intended for professional/institutional clients only and not for distribution to any retail clients. India: Prepared by UBS Securities India Private Ltd. (Corporate Identity Number U67120MH1996PTC097299) 2/F, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai (India) 400051. Phone: +912261556000. It provides brokerage services bearing SEBI Registration Numbers: NSE (Capital Market Segment): INB230951431, NSE (F&O Segment) INF230951431, NSE (Currency Derivatives Segment) INE230951431, BSE (Capital Market Segment) INB010951437; merchant banking services bearing SEBI Registration Number: INM000010809 and Research Analyst services bearing SEBI Registration Number: INH000001204. UBS AG, its affiliates or subsidiaries may have debt holdings or positions in the subject Indian company/companies. Within the past 12 months, UBS AG, its affiliates or subsidiaries may have received compensation for non-investment banking securities-related services and/or non-securities services from the subject Indian company/companies. The subject company/companies may have been a client/clients of UBS AG, its affiliates or subsidiaries during the 12 months preceding the date of distribution of the research report with respect to investment banking and/or non-investment banking securities-related services and/or non-securities services. With regard to information on associates, please refer to the Annual Report at: http://www.ubs.com/global/en/about_ubs/investor_relations/annualreporting.html The disclosures contained in research documents produced by UBS Limited shall be governed by and construed in accordance with English law. UBS specifically prohibits the redistribution of this document in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect. Images may depict objects or elements that are protected by third party copyright, trademarks and other intellectual property rights. © UBS 2016. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved. 
| |
