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December 15, 2015

Europe

Strategy Matters

Portfolio Strategy Research

Credit and the risk to equities


The sharp sell-off in the US HY has focused investor attention on risk and financial leverage in
equities. We look at the drivers of the US credit market and the implications for equities. In US
equities, our strategists have a clear preference for strong balance sheet companies versus weak
balance sheet names (GSTHSBAL vs. GSTHWBAL). In Europe, we believe financially levered stocks
(GSSTFNLV) are generally less vulnerable due to a combination of their lower exposure to
commodities and more policy support.
Credit spreads have widened to recessionary levels...
Among the many risks investors are focused on currently is the sharp
widening of credit spreads, particularly US HY. The widening is concerning
as, on our analysis, credit spreads have reached levels that are consistent
with a global recession.

...but this has been largely related to commodity exposure...


That said, our credit strategists note that, while spreads at current levels
gave advance warning of recessions in 1990 and 2001, in 2008 spreads did
not reach current levels until after the recession had begun, and in 2011 were
a false signal. Most economic data suggest US recession risk is low and we
expect spreads to tighten again in 2016. Second, our credit strategists argue
that much of this widening relates to the heavy weight of oils in the (HY US)
index. Metals & Mining and Energy sectors account for 32% of the market.
They continue to prefer IG to HY in the US, and Europe to US IG.

...and liquidity issues


There are also significant liquidity concerns. There have recently been
record volumes in HY ETFs and imposed limits to volumes exacerbate
these concerns. Last week, $3.5 bn exited HY funds in the US, $2.8 bn of
which was from mutual funds.

Peter Oppenheimer
+44(20)7552-5782 peter.oppenheimer@gs.com
Goldman Sachs International

Sharon Bell, CFA


+44(20)7552-1341 sharon.bell@gs.com
Goldman Sachs International

Christian Mueller-Glissmann, CFA


+44(20)7774-1714 christian.muellerglissmann@gs.com
Goldman Sachs International

Ian Wright
+44(20)7774-2600 ian.wright@gs.com
Goldman Sachs International

Lilia lehl Peytavin


+44(20)7774-8340 lilia.peytavin@gs.com
Goldman Sachs International

Jim McGovern
(801) 741-5572 james.mcgovern@gs.com
Goldman, Sachs & Co.

What about equities?


One concern is that problems in HY credit have yet to be fully reflected in
equity. HY credit spreads have increased much more than implied volatility
for the S&P 500. Also, highly levered US companies have not sharply
underperformed despite the poor performance of credit. Our US equity
strategists recommend a long in strong balance sheet stocks (GSTHSBAL)
vs. weak (GSTHWBAL). We believe financially levered European stocks
(GSSTFNLV) are less sensitive (outside those exposed to commodities) to
the US HY sell off. That said, risks in credit make us reluctant to recommend
these names; we prefer our high DY with growth basket (GSSTHIDY), this is
screened on balance sheet criteria, to ensure the dividend is sustainable.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, 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. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

The Goldman Sachs Group, Inc.

Global Investment Research

December 15, 2015

Europe

Credit and the risk to equities


Among the many risks that investors are focused on currently is the sharp widening of
credit spreads, particularly in US HY, and the related continued declines in oil prices. The
spread widening is concerning as, based on our analysis, credit spreads have reached
levels that, back to the 1980s, are consistent with recession. This has been one of the key
reasons why we have been reluctant to take risk in our asset allocation on a 3-month basis
(see GOAL: 2016 outlook: Flatter and fatter - still pro-risk, but near-term neutral,
December 9, 2015).
Exhibit 1: Barring a rebound over the next two weeks, 2015 will be the first negativereturn year for US HY outside of recession years
Annual returns for Barclays US Corporate HY index since 1983. The vertical grey bars show
recession periods.

Percent

HY total return (annual)

70

60

0.9

50

0.8

40

0.7

30

0.6

20

0.5

10

0.4

0.3

-10

-5.8%

-20
-30

0.2
0.1
0

1983

1987

1991

1995

1999

2003

2007

2011

2015

Source: Barclays, Haver Analytics, Goldman Sachs Global Investment Research

In For the Nth time: HY sell-off needs oil to stabilise (published December 11, 2015), our
credit strategists note that 2015 looks likely to be the worst non-recession year for total
returns in US HY on record. We examine whether this is a lead indicator for the equity
market.
Our credit strategists are more sanguine than the market. First, while credit spreads at
current levels gave advance warning of recession in 1990 and 2001, they note that in 2008
spreads did not reach current levels until the recession had already begun, and in 2011
they were a false signal. Most economic data suggest current recession risk is low and we
expect credit spreads will tighten in 2016.
Second, our credit strategists argue that much of the widening this year relates to the
heavy weight of oils in the (US HY) index. Metals & Mining and Energy sectors account for
32% of the total par value of the index. The failure to reach an agreement to constrict oil
supply at the recent OPEC meeting triggered another sharp move lower in oil prices. While
our commodities team forecasts a $45/bbl oil price by April and $52/bbl by the end of 2016
as financial stress on producers could help abate excess supply, they still see risks that oil
prices could collapse to production costs as low as $20/bbl in the event surpluses breach
storage capacity. US HY spreads have been closely correlated with the oil price (Exhibit 2).

Goldman Sachs Global Investment Research

December 15, 2015

Europe

Exhibit 2: US HY Energy issuer spreads have moved in lock-step with oil prices
US HY Energy spread, WTI oil price (RHS, inverted)
15

1400
HY spread energy
1250

25

WTI oil price (RHS, inverted)

35

1100

45

950

55

800

65
75

650

85

500

95

350
200
Dec-13

105
Jun-14

Dec-14

Jun-15

115
Dec-15

Source: Goldman Sachs Global Investment Research.

As a consequence, our credit strategists continue to prefer IG to HY in the US and they


prefer Europe IG to US IG.
But it is not all about the influence of oil on US HY. In addition, there have been other
idiosyncratic risks in the US. For example, the Telecoms sector accounts for 16% of the HY
index. If there is a sharp move in a key stock within any significant sector, it can have an
out-size impact on the index, further emphasising the high degree of dispersion across
sectors and issuers in the market.
Exhibit 3: and the same is true for US HY ex-Energy issuer spreads
US HY ex-Energy spread, WTI oil price (RHS, inverted)
750
700

15

HY spread ex energy

25

WTI oil price (RHS, inverted)

35

650

45

600

55

550

65
75

500

85

450

95

400
350
Dec-13

105
Jun-14

Dec-14

Jun-15

115
Dec-15

Source: Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research

December 15, 2015

Europe

There are also significant concerns about liquidity. Recently, there have been
record volumes in HY ETFs and imposed limits to volumes exacerbate these
concerns. Last week, $3.5 bn exited HY funds in the US, $2.8 bn of which was from
mutual funds. This was the largest HY outflow since August 2014, pushing year-to-date
cumulative flows as a percentage of AUM down 1.4%. IG was not immune and equity
funds also saw sharp outflows. Concerns about lack of liquidity remain significant. Some of
this outflow is structural (the sharp increase in demand for HY credit over recent years as
interest rates collapsed and pushed investors up the risk curve and the impact on bank
regulation that reduces inventories) but some is cyclical. As our credit analysts note,
history suggests credit fund flows decline during the early part of the hiking cycle (see
Global Credit Outlook 2016: Constructive on value, cautious on quality, November 20, 2015).

What about equities?


To some degree, we believe the rise in credit spreads can also be seen as a
function of risk appetite more generally. In that respect, there should be some
relationship between credit spreads and equities.
To this point, one concern is that the problems in HY credit have yet to be fully reflected in
equity. US HY credit spreads have so far increased much more than the implied volatility
for S&P 500 (Exhibit 4). The current gap is similar to that at the end of August, when credit
stress spilled over to equities (see GOAL Flash: Credit Check; credit likely overstating
growth risks and could impact equities from here, October 7, 2015).
Exhibit 4: US HY credit spreads have increased more than the S&P 500 implied volatility
S&P 500 12m ATM implied volatility vs. BAML US HY credit spread
33

S&P 500 12-month ATM implied volatility (%)

31

BAML US HY credit spread (RHS)

1000
900

29
800

27
25

700

23
600

21
19

500

17
400

15
13
Jan-10

Jun-11

Dec-12

Jun-14

300
Dec-15

Source: BAML, Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research

December 15, 2015

Europe

Also, highly levered US companies have not sharply underperformed the US


equity index despite the poor performance of credit.
Exhibit 5: Highly leveraged US companies have not underperformed
US weak vs. strong balance sheet companies and BAML US HY credit spreads
145

300

140

350

135

400

130

450

125
120

500

115

550

110

600

105

650

100

US weak vs. strong balance sheet co's

95
90
Jan-12

BAML US HY credit spread (RHS, inverted)


Dec-12

Dec-13

Dec-14

700
750
Dec-15

Source: BAML, Goldman Sachs Global Investment Research

This may be because US companies have been re-leveraging via share buy backs
in recent years. This is in line with our US strategists preference for companies with
strong balance sheets (see US Weekly Kickstart: Credit markets are telling equity investors
to buy strong balance sheet stocks, December 11, 2015). Ex-Financials, the median S&P 500
firms trailing 12-month net debt/EBITDA is at the highest level in more than a decade,
rising from 0.8x in 2010 to 1.0x at the start of 2015, to 1.3x currently. Historically, low
interest rates have spurred investors to reward weak balance sheet stocks as corporate
leverage spiked, but we expect the recent outperformance of strong balance sheet stocks
will accelerate as the hiking cycle begins. Our US equity strategists sector-neutral basket of
50 strong balance sheet stocks (GSTHSBAL) underperformed the weak balance sheet
basket (GSTHWBAL) by more than 50 pp over 2012-14, as investors rewarded firms taking
advantage of QEs easy money to raise debt and return cash to shareholders. However,
this dynamic has reversed: GSTHSBAL has outperformed both GSTHWBAL and the S&P
500 index this year to date. Our US colleagues expect this trend to continue.

Goldman Sachs Global Investment Research

December 15, 2015

Europe

European credit is a better place to be than US credit


Overall, our credit strategists prefer exposure to European credit than US credit.
This view is based on the following factors:

Monetary policy divergence between the US and Europe is likely to increase, which
provides a more supportive technical backdrop to EUR spreads vs. USD counterparts.

We expect credit quality in core Europe to remain more attractive as companies have
not re-leveraged as widely as US companies, while profitability appears to be
improving.

EUR spreads have room for further compression relative to USD spreads, in part due
to lower idiosyncratic risk in aggregate in Europe.

Exhibit 6: More US companies have re-levered than in Europe


Net debt to equity ex financials (%)
80

Net debt to equity Europe

75

Net debt to equity US

70
65
60
55
50
45
40
35
30
00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

Source: Datastream, Worldscope.

Our financial leverage basket in Europe has held up well versus the market
(Exhibit 7). This makes sense both because European corporates have not increased
financial leverage to the extent that US companies have and also because European
interest rates are likely to remain much lower for longer than in the US. European credit is
not exposed to commodities in the same way as the US credit indices. For these reasons
our credit strategists are more positive on European credit and we see less risk to the
European equity market in general.

Goldman Sachs Global Investment Research

December 15, 2015

Europe

Exhibit 7: Highly leveraged European companies have not significantly underperformed vs


the market
Financial leverage basket (GSSTFNLV) vs. SXXP and iTraxx Europe Xover CDS
130

0
Financial leverage basket (GSSTFNLV) vs. market

125

100

iTraxx Europe Crossover (RHS, inverted)

200

120

300
115
400
110
500
105

600

100

700

95
Jan-12

800
Jan-13

Jan-14

Jan-15

Source: Datastream, Goldman Sachs Global Investment Research

Nevertheless, there is a relationship between volatility in equities and credit spreads. But
volatility in the equity space has already increased more than would normally be implied
by this relationship (Exhibit 8).
Exhibit 8: Equity implied volatility has risen more than levels suggested by EUR HY
spreads
EURO STOXX 50 ATM implied volatility and Barclays EUR HY credit spread
35

EURO STOXX 50 12-month ATM implied volatility (%)

33

Barclays EUR HY credit spread (RHS)

1300
1200

31

1100

29

1000

27

900

25

800

23

700

21

600

19

500

17

400

15
Jan-10

300
Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Source: Datastream, Barclays, Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research

December 15, 2015

Europe

All about commodities, EM and risk aversion rather than just HY


Another point is that it depends on what is defined as being financially highly
levered. The criteria for inclusion in our European financial leverage basket (GSSTFNLV) is
that companies must be above the 70th percentile by 2015E and 2016E net debt/equity and
2016E debt/market cap, and among the weakest half of companies in terms of interest
cover (based on GS coverage). Our basket has a weight of 9% in commodity-exposed
companies (Energy and Basic Resources); about the same as for the STOXX Europe 600.
Our US strategists weak balance sheet basket (GSTHWBAL) has 14% in Energy and
Materials names, more than the S&P 500, hence it has tended to underperform the index
this year with the sell-off in commodities.
If we loosen the criteria for inclusion for the commodities-exposed names in Europe by
removing the net debt/equity criteria (equity is overstated for many commodity-related
companies given that equity values on the balance sheet refer to periods of much higher
commodity prices), several more companies could be defined as financially highly levered
based solely on debt/market cap and interest cover. These include Stora Enso,
ArcelorMittal, Anglo American, Repsol, OMV and Amec Foster Wheeler.
Including more commodities names in GSSTFNLV (Europe) changes the picture
and indicates that the performance of the basket vs the SXXP has been worse
than GSTHWBAL (US) vs the S&P500 this year to date. Including the commodity
names in our basket means the weight of these stocks would be almost a quarter of the
basket. The relative performance also tracks the oil price very closely.
However, it is not so much financial leverage per se that has underperformed especially
not in Europe. It is more that commodity-exposed stocks and particularly those with weak
balance sheets hence those more likely to experience financial difficulty that have
performed poorly.
Exhibit 9: Our high financial leverage basket has held up well vs. a basket of similar US
stocks; this is not the case if more commodity-exposed stocks are added to our basket
Relative performance of baskets of highly financially leveraged European and US companies
111
109
107
105
103
101
99
97

European highly levered co's (GSSTFNLV) vs SXXP


European highly levered co's (GSSTFNLV) + additional commodity names vs SXXP

US highly levered co's (GSTHWBAL) vs S&P 500


95
Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15
Source: Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research

December 15, 2015

Europe

In the broader context of a sell-off more generally in cyclical, commodities and


EM assets, often exposure to these elements is more relevant than leverage
levels. In Europe, overall borrowing rates for corporates remain very low, which our
economists discussed in European Economics Daily: Access to credit improving for Euro
area SMEs (December 9, 2015).

We continue to prefer high dividend yield + growth (GSSTHIDY)


Our preference has been to focus on companies across the European market that have high
dividend yields but also potential for dividend growth backed by strong balance sheets and
FCF cover. We continue to recommend our high dividend yield + growth basket
(Bloomberg ticker: GSSTHIDY). With a gradual increase in bond yields in 2016, the search
for yield, which has supported high-dividend-yield stocks (and credit) in recent years,
should ease and we suggest investors focus even more on dividend growth. Our basket
aims to balance the trade-off between yield and growth, i.e. we accept less yield, but
require more growth than most top-quartile dividend yield stocks offer. The GSSTHIDYbasket has been a steady outperformer relative to the market since inception in 2012
(Exhibit 10). It has not performed as strongly as European HY credit since 2012 however,
the performance of European HY credit flattened in 2015 and benefitted less from the ECBs
QE than equities (Exhibit 11). While we expect credit spreads to tighten, we also think

that higher government bond yields might become a bigger drag on credit than on
equities, particularly stocks that are able to grow their dividend should be more
resilient.
Exhibit 10: Our high dividend yield + growth basket is

Exhibit 11: outperforming the market, but not HY credit

Basket performance relative to the SXXP

Absolute performance

119

275

GSSTHIDY

255

iBoxx EUR

117

GSSTHIDY vs. SXXP


(Relative total Return)

115
113
111
109
107
105
103
101
99
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
Source: Bloomberg, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

235

Barclays Europe HY

215
195
175
155
135
115
95
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
Source: Datastream, Barclays, Bloomberg, Goldman Sachs Global Investment
Research.

December 15, 2015

Europe

Credit, commodities and EM are all tied to risk aversion


One area of particular sensitivity for EM equities is rising credit risk. While EM equities
would benefit from rates being lower for longer, they nevertheless suffer from higher
perceived risks in the US economy. EM equity underperformance relative to DM equity
closely tracks US HY spreads (Exhibit 12).
Exhibit 12: EM equity underperformance closely tracks US HY spreads
MSCI EM vs. MSCI The World relative price return and iShares iBoxx $ High Yield Corporate
Bond ETF (RHS)
105

100

100

95

95
90
90
85
85
80

80
MSCI EM vs. MSCI The World
75
Jan-14

IBOXX USD High Yield (RHS)


75

May-14

Sep-14

Jan-15

May-15

Sep-15

Source: Bloomberg, Goldman Sachs Global Investment Research.

Similarly, European companies with high EM exposure (GSSTBRIC) tend to underperform


the broader European market when US HY spreads increase. In our view this further
supports a cautious stance on EM currently, particularly in the more industrial and capexrelated areas of the market.
Exhibit 13: as does the split between EM industrial vs. consumer exposure
EM industrial (GSSTBRCI) vs. EM consumer (GSSTBRCC) relative price return and iShares iBoxx
$ High Yield Corporate Bond ETF (RHS)
100

110
105

95

100
95

90

90
85

85
80
75
70
Jan-14

80
EM industrial vs. EM consumer

IBOXX USD High Yield (RHS)


75

May-14

Sep-14

Jan-15

May-15

Sep-15

Source: Bloomberg, Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

10

December 15, 2015

Europe

Exhibit 14: Constituents of our Financial Leverage Basket (GSSTFNLV)


FINANCIAL LEVERAGE BASKET (GSSTFNLV)
Company name
Basic Resources
Voestalpine
Construction & Materials
Vinci
Eiffage
Ferrovial S.A
Food & Beverage
Pernod Ricard
Health Care
Fresenius SE
Fresenius Medical Care
Industrial Goods & Services
ThyssenKrupp
Smurfit Kappa Group
Royal Vopak
Groupe Eurotunnel SA
G4S Plc
Fraport AG
Atlantia
Aena SA
Media
Numericable
Altice N.V.
Oil & Gas
Tullow Oil Plc
Lundin Petroleum
Personal & Household Goods
Imperial Tobacco
Real Estate
Vonovia
Retail
Tesco
Dufry
Technology
Eutelsat Communications
Telecommunications
Telefonica
TDC A/S
Royal KPN NV
Millicom International Cellular
Inmarsat Plc
Travel & Leisure
Ladbrokes
Utilities
Suez Environnement
Hera SpA
Median

Basket weights (%)


3.1%
3.1%
9.4%
3.1%
3.1%
3.1%
3.1%
3.1%
6.3%
3.1%
3.1%
25.0%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
6.3%
3.1%
3.1%
6.3%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
6.3%
3.1%
3.1%
3.1%
3.1%
15.6%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
3.1%
6.3%
3.1%
3.1%

Current market
cap (Bn)

Net
debt/equity
15E

Net
debt/equity
16E

Interest cover
15E

Interest cover
16E

Net
debt/market
cap 15E

Net
debt/market
cap 16E

4.7

68%

67%

4.6

4.7

79%

82%

31.8
5.1
15.1

91%
395%
111%

80%
354%
102%

5.5
2.0
2.1

6.5
2.4
2.1

43%
258%
42%

40%
253%
38%

26.6

65%

60%

5.4

6.2

34%

32%

33.7
22.5

72%
76%

65%
73%

6.0
5.6

7.3
6.5

38%
35%

38%
36%

9.5
5.3
4.5
6.1
4.5
5.1
19.6
15.8

98%
101%
96%
234%
156%
102%
149%
228%

77%
78%
83%
222%
136%
111%
146%
196%

1.1
5.1
4.4
1.5
3.9
4.1
3.0
5.5

2.6
6.2
4.8
1.6
4.2
4.1
4.1
5.4

35%
51%
45%
62%
49%
53%
52%
60%

32%
46%
44%
59%
45%
68%
58%
56%

14.5
11.0

211%
499%

329%
492%

1.8
1.2

2.5
1.4

80%
329%

94%
328%

1.9
4.0

97%
609%

101%
441%

2.6
0.7

3.3
1.2

198%
88%

218%
94%

44.4

232%

215%

6.4

6.6

36%

34%

12.4

94%

89%

2.6

2.8

103%

85%

15.8
4.7

117%
124%

147%
105%

2.4
0.9

2.4
1.6

76%
72%

69%
50%

6.0

121%

102%

5.7

5.8

53%

49%

47.2
3.5
14.2
5.5
6.9

153%
165%
188%
134%
169%

116%
143%
189%
139%
195%

2.3
3.8

2.7
3.8

2.4
4.3

2.8
4.2

92%
124%
58%
74%
27%

64%
117%
55%
75%
29%

1.4

82%

74%

2.7

3.2

31%

28%

8.7
3.5
7.8

124%
103%
122%

124%
99%
114%

2.9
1.8
2.9

3.0
1.9
3.3

85%
72%
59%

91%
72%
57%

Source: Goldman Sachs Global Investment Research.

Goldman Sachs Global Investment Research

11

December 15, 2015

Europe

Equity basket disclosure


The ability to trade the basket(s) discussed in this research will depend upon market conditions, including liquidity and borrow constraints at the time
of trade.

Goldman Sachs Global Investment Research

12

December 15, 2015

Europe

Disclosure Appendix
Reg AC
We, Peter Oppenheimer, Sharon Bell, CFA, Christian Mueller-Glissmann, CFA, Ian Wright, Lilia lehl Peytavin and Jim McGovern, hereby certify that
all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We
also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in
this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

Disclosures
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Rating Distribution

Buy

Hold

Investment Banking Relationships

Sell

Buy

Hold

Sell

Global
32%
53%
15%
63%
57%
52%
As of October 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,221 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

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The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws
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Association. Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific
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Ratings, coverage groups and views and related definitions


Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy

or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as
a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a
global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage
group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment
recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated
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Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at
http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook
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months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the
following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over
the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an
advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman

Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for
determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and
price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended
coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The
information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Global product; distributing entities


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European Union: Goldman Sachs International authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority

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General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we
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The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may
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2015 Goldman Sachs.
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