EFTA Document EFTA01385522

> Energy, Materials & Industrials Continental — Tim Rokossa, BUY, close €232.3, €250 tgt, 8% upside ■ 1) Automotive outperformance is at an inflection point. Continental has taken Valeo's mantle as the fastest-growing European supplier. Automotive organic growth was 9% in Q3 (700bps above global production and 250bps above Valeo). ■ 2) Continental is the best play on the autos 'mega trends.' Continental is a leader in all of: - Autonomous driving — indeed, the world's largest player. This segment grew 41% yoy in 9M17. This is not limited to Chassis & Safety but also includes software, consolidated in the Interior division. - Electrification. According to Continental, its content per car could be up to 3x higher for a full EV compared to a standard gasoline engine. - Digitalisation si The mix shift away from diesel helped turbochargers grow >50% in Q3. ■ 3) Rubber should accelerate further. The margin was a slight beat in O3. With a negative raw mat impact abating in coming quarters, and given our expectation that price increases (+2% in Q3) will prove sticky, we expect earnings momentum to accelerate. • 4) Valuation: Continental has €20 upside just to reach a valuation in line with peers (current 18E PIE is only 11.2x), despite robust growth • Cash generative (€2.4bn ex M&A this year). We see scope to increase pay-out, given CFO guidance of no major transactions in the short term. • Catalysts: FY results 09-Jan — talk around ADAS could offset cautious guidance Related DB Research: What Conti's CFO statements mean for our view on 2018 (Rokossa) Get ready for a (mod 2018 (Rokossa) Deutsche Bank Continental was one of the fastest growing auto suppliers in Q3 14% 12% 10% 8% 6% 4% 2% 0% # *fa e t / C Source: Company data. (OE since 2014. OE•RT bolero) I I t de 6, ore cfre- ess +to ti 4 4fr 4..0 .)fr e f, 41/49 ° <c, b cfr • 41' o% e q Order intake backs thesis of stronger growth ahead 40 35 30 25 20 15 10 0 2010 2011 2012 2013 2014 2015 2016 2017 Source: Company data Deutsch* Bank Research' European Equity Focus - Jemmy 21:18 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086808 CONFIDENTIAL SDNY_GM_00232992 EFTA01385522