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Legal notice

Concerning investment recommendations disseminated by the company

ATLANTIK FT finanční trhy, a.s. (hereinafter just “ATLANTIK FT”) is a licensed securities broker, a member of the joint-stock company Prague Stock Exchange, and a market maker for all titles traded in the SPAD segment on the PSE. It is entitled to provide investment services pursuant to Act No. 256/2004 Coll., on capital market undertakings. ATLANTIK FT produces and disseminates investment recommendations in accordance with legal regulations, the broker’s internal rules, and Decree No. 114/2006 Coll., on the impartial presentation of investment recommendations. The activities of ATLANTIK FT are subject to supervision by the Czech National Bank, Na Příkopě 28, 115 03 Prague 1 – http://www.cnb.cz/.

ATLANTIK FT disseminates its investment recommendations in accordance with Decree No. 114/2006, on the impartial presentation of investment recommendations. This document contains certain important information and notices concerning the production and dissemination of investment recommendations.

I. Basic principles for creating and presenting investment recommendations

ATLANTIK FT guarantees that all investment recommendations produced by the company meet the following requirements:

Factual information is clearly differentiated from information that is not factual, including especially the interpretation of estimates or opinions.
If the sources used to produce a recommendation are reliable, that fact is clearly stated in the document.
All forecasts, price targets, and fundamental bases given for their creation are clearly indicated.
The document contains a clear indication of the person or entity who or which produced them, specifying in particular the company or business name of the legal entity, or name, surname and position of the individual who prepared them.
The document contains an indication of the administrative authority exercising supervision over ATLANTIK FT.

ATLANTIK FT publishes investment recommendations produced by employees of ATLANTIK FT (hereinafter just “analysts”). The analysts creating investment recommendations are fully responsible for their objectivity.

Levels of investment recommendations

ATLANTIK FT uses the following levels of investment recommendations:

BUY – it is anticipated that the percentage difference between the one-year target price of a share (determined by one of the valuation methods stated below) and the current market price is greater than the minimum theoretical required return for the respective share. These required returns are determined as the sum of earnings from a risk-free asset (the longest government bond of the Czech Republic) and the product of the beta coefficient and risk premium (determined individually for each company and derived from the risk premium for the Czech market; we estimate that risk premium to be 5%).
HOLD - it is anticipated that the percentage difference between the one-year target price of the share (determined by one of the valuation methods stated below) and the current market price is less than the minimum theoretical required return for the respective share but is, at the same time, greater than the return from a risk-free asset.
SELL - it is anticipated that the percentage difference between the one-year target price of the share (determined by one of the valuation methods stated below) and the current market price is less than the minimum theoretical required return from a risk-free asset.

An overview of changes in the level for an investment instrument in regard to which ATLANTIK FT has issued an investment recommendation and its price targets during the past 12 months is published and accessible remotely at http://www.atlantik.cz/.

Valuation methods

In preparing and disseminating investment recommendations, ATLANTIK FT uses the following valuation methods:

Fundamental valuation - is based on a discounted Free Cash Flow to Equity model or Dividend Discount Model. The choice to use the DDM depends upon whether the given company has a long-term stable dividend policy. If not, then the FCFE model, which is based on the cash flow available for distribution to shareholders discounted to the present value, is used. Both valuation models always involve two steps. The first step consists in preparing a detailed projection of the balance sheet, income statement, cash flow statement, and dividends in the so-called initial period (approximately 6 years) and the second step is based on the Gordon Growth Model. The specific assumptions relating to both steps of the model are always described in full detail.
Relative comparison - consists in selecting a group of comparable publicly traded companies, obtaining an average (median) of the valuation multiples stated below and applying the values of those multiples to such accounting data as revenues, EBITDA, EBIT or operating cash flow.
In general, the company regards EV/EBITDA (the ratio of the enterprise value to EBITDA) as the best predictive indicator because it accounts for operating profitability as well as the indebtedness of each company (through the so-called “net debt” included in calculating the enterprise value).
For relative comparison, ATLANTIK FT uses the following valuation multiples:
- P/S - market capitalization of the company relative to its total revenues (Price to Sales);
- EV/EBITDA - enterprise value to EBITDA, where the enterprise value equals the sum of the company’s market capitalization plus its net debt, while EBITDA is the sum of its operating profit, depreciation and amortization;
- P/EBITDA - market capitalization of the company to EBITDA;
- P/E - market capitalization of the company to profit after tax;
- P/OCF - market capitalization of the company to operating cash flow;
- P/BV - market capitalization of the company to the book value of its equity.

In valuing companies and investment projects, ATLANTIK FT primarily uses the discounted cash flow methods (FCFE or DDM). Although the relative comparison method is an integral part of every valuation, it serves more as a corroborative test for the discounting method due to the following reasons: (i) differences in accounting standards, (ii) differences in the sizes of companies, (iii) information availability, (iv) impacts of acquisitions and subsidiaries on balance sheet structures, (v) differences in dividend strategies, and (vi) differences in expectations for future profit margins. If the fundamental valuation is in principle consistent with the range of values determined on the basis of the relative comparison, this implies that the projections of cash flows and other key presumptions of the discount model are correct (especially the discount factor, growth rate for the so-called “infinite period,” capital structure, etc). In the reverse case, it is necessary to identify the main factors causing the differences between the findings of the two valuation methods.

Special principles for presenting investment recommendations

ATLANTIK FT will take due care to ensure that:

every investment recommendation contains a reasonable indication of all material information sources, including the issuer of the investment instruments as well as information on whether this issuer was aware of the investment recommendation prior to its dissemination and whether the investment recommendation was modified accordingly prior to its dissemination;
every investment recommendation contains a reasonable explanation as to the valuation method or valuation principles used, the issuer or how the price target was established;
every investment recommendation contains a reasonable explanation of the meaning of that recommendation, and especially its level and, where relevant, its time horizon;
every investment recommendation contains a description of the potential risks, including to state the impact of a change in the fundamental assumptions used in reaching the recommendation;
every investment recommendation contains, as appropriate, information about the frequency of its updates or the date of the next update, if planned, as well as a notice about changes in these facts;
the date of the first release for dissemination of an investment recommendation is clearly and unequivocally indicated;
the date or time period relating to any information regarding the price of a financial instrument stated in the investment recommendation is clearly and unequivocally indicated;
if in the past 12 months the level or direction of an investment recommendation or the price target concerning a particular financial instrument or issuer has changed, the investment recommendation contains a clear and unequivocal indication of such change and the publication date of the previous recommendation.

Should the performance of the obligations above be unreasonable in view of a specific investment recommendation’s duration, ATLANTIK FT will publish such information in a manner allowing remote access and will clearly indicate in the investment recommendation the internet address where this information will be published.

ATLANTIK FT will ensure that its investment recommendations on individual investment instruments are regularly updated on the basis of specific developments or announcements, conditions on the market, or any publicly available information.

II. Rules for disseminating an investment recommendation produced by another entity

If ATLANTIK FT disseminates at its own responsibility an investment recommendation produced by another entity, such investment recommendation should also indicate its disseminator, unless such information is clearly obvious from the circumstances under which the recommendation is disseminated.

Should ATLANTIK FT disseminate an investment recommendation that was produced by another entity and that was significantly changed, such investment recommendation should clearly and in detail describe the details of the significant change made. If ATLANTIK FT distributes significantly changed investment recommendations, it will ensure that the recipients of these investment recommendations are referred to the place where they can access information about the other entity producing the investment recommendations, the original investment recommendation, and information on such entity’s interests and conflicts of interest, should such information be publicly available. The aforementioned does not apply to news concerning the investment recommendations produced by the other entity, unless a material change is made in the investment recommendations.

In disseminating a summary of an investment recommendation produced by another entity or an overview of several such recommendations, ATLANTIK FT will ensure that such summary is clear, unbiased and contains data about the original investment recommendation as well as reference to the place where the information essential to this recommendation, if publicly available, can be found.

III. Rules for disclosing interests and conflicts of interest

ATLANTIK FT shall disclose information as to circumstances that can be reasonably anticipated to affect the objectivity of an investment recommendation, and in particular information on any of its own significant financial interests or a conflict of interest concerning the investment instrument or issuer to which the investment recommendation relates, and

such information shall be stated for every person participating in producing the investment recommendation;
such information shall contain data regarding circumstances that are: (i) available or can be reasonably anticipated to be available to persons participating in the creation of an investment recommendation; (ii) known to persons not participating in the creation of an investment recommendation but who can access the investment recommendation before it is disseminated to the clients or public; this shall also apply to persons who reasonably can be anticipated to have access to an investment recommendation before it is so provided or disseminated.

An investment recommendation contains the aforementioned information directly in its text. Should the disclosure of this information be inappropriate in view of the duration of an investment recommendation, such information shall be disclosed in a manner allowing remote access and ATLANTIK FT shall clearly indicate in the investment recommendation the address where this information is published.

Special rules for disclosing interests and conflicts of interest

ATLANTIK FT shall also state in an investment recommendation (concerning a particular issuer or its investment instrument) information concerning:

its own direct or indirect share in the issuer’s basic capital greater than 5%, if any;
the issuer’s direct or indirect share in its basic capital greater than 5%, if any;
its own other important financial interests, if any, in relation to the issuer;
whether remuneration to persons participating in the production of an investment instrument is derived from the transactions of that qualified person or of another person related to that person;
whether an investment recommendation is produced in connection with a public offer of investment instruments and a natural person participating in the production of an investment recommendation acquired the issuer’s financial instruments before the aforementioned public offer, as well as information regarding such transaction, including the date of the transaction and price of the investment instruments;
general information as to which organizational and administrative measures and information barriers relating to the securities broker exist that prevent a conflict of interest from arising in respect to the investment recommendations;
if such circumstance occurred, information as to whether:
- it is a market maker or an entity otherwise providing liquidity in respect of the financial instruments issued by the issuer,
- in the past 12 months it was a lead manager or a co-lead manager of a public offer of financial instruments issued by the issuer,
- it has concluded with the issuer another contract for providing investment services, or
- it has concluded with the issuer a contract relating to the production and dissemination of investment recommendations.

At least once per calendar quarter, ATLANTIK FT will disclose the following information:

the proportions of its currently valid investment recommendations falling into the individual levels of BUY, HOLD and SELL, and
individually for each level of recommendation as above, the proportion of issuers relating to such recommendations to which ATLANTIK FT provided investment services to a significant extent in the past 12 months.

An investment recommendation contains the information stated above. Should the disclosure of this information be inappropriate in view of the duration of an investment recommendation, it will be sufficient to disclose this information in a manner allowing remote access and to clearly and unequivocally state the internet address where it is published.

Provisions concerning disclosure of interests and conflicts of interest shall not apply to cases in which:

facts constituting a banking or business secret would be disclosed;
performance of this obligation would contradict organizational measures and procedures designed to inhibit the possibility for conflicts of interest to arise or would lead to a breach of information barriers implemented to inhibit the possibility for conflicts of interest to arise.

ATLANTIK FT, its related entities, and entities having legal or effectual relationships with them, including members of statutory bodies, managers or other employees, may trade in investment instruments or make other investments and related transactions and may, in a decisive period, buy or sell them or offer them for purchase or sale, whether as brokers, agents or in another legal capacity, on a public market or elsewhere. Brokers and ATLANTIK’s other employees and/or related entities may provide their clients and the company’s trading department with oral or written commentaries regarding a market or trading strategy that reflect opinions contradicting those views expressed in the investment recommendations. In making investment decisions, investors should regard an investment recommendation as only one of several factors to be considered. The investment analyses and recommendations issued by ATLANTIK FT and/or related entities have been prepared in accordance with the rules of conduct and internal regulations for managing conflicts of interest associated with investment recommendations.

ATLANTIK FT provides its clients with investment recommendations and analyses regarding developments and the situation on capital markets. Nevertheless, it is always the client’s responsibility to make the final investment decision. Although ATLANTIK’s analysts prepare their investment recommendations in good faith, in a professional and fair manner, and with due care, ATLANTIK FT cannot accept responsibility and cannot guarantee that the information contained therein is complete or accurate, except for the information concerning ATLANTIK FT. The investment recommendations express the opinions of ATLANTIK’s analysts as of the date of their publication and may be changed without prior notice.

Successful investments in the past do not guarantee the same results in the future. Investment recommendations do not in any case constitute an offer to purchase or sell any investment instruments. The individual investment instruments or strategies stated in the investment recommendations need not necessarily be suitable for every investor. The opinions and recommendations stated therein do not take into account the situations of individual clients, their financial positions, objectives or needs. The investment recommendations should serve those investors who are anticipated to make their own investment decisions without depending unreasonably on the information stated in the investment recommendations.

These investors are obliged to make their own decisions as to the expediency of investments made in any investment instruments by appropriately considering the price, possible threats and risks, along with their own investment strategies and financial situations. The value or price of any investment may change. Therefore, investors may receive funds in return that are less than were their original investments. Successful investments made in the past do not guarantee favorable results in the future.

Measures preventing conflicts of interest from arising in association with investment instruments

The remuneration to persons who participate in producing investment recommendations depends in particular on the quality of the work they perform, the results achieved, and the company’s overall profit. Those who participate in producing the investment recommendations have neither financial nor other motivations to issue investment recommendations of a particular level or direction. In complying with the rules for prudently providing investment services and for organizing the company’s internal operations, ATLANTIK FT applies procedures and rules set forth by legal regulations and the company’s internal regulations which prevent conflicts of interest from arising in association with investment instruments and the investment recommendations disseminated by ATLANTIK FT.