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aH Mat GS koe Chart 34: SX5E dividends: 2-yr implied growth in 2018 still looks Chart 35: BofAML’s SX5E Dec18 div forecast implies 8% upside cautious Ms EST X50 realised dividends 10% 150 7 ——te< Dividend “aD 2440 4 Consensus = 2. seedeee> BofAML 5% = 30 £120 + 0% A110 Q x 100 + -5% oO | 117.3div ° i 90 pts paid in 80 - i { 2016 YTD -10% 70 S = N =" ‘s RRRRARR 2003 & 71.4 2006 | 2007 | 2008 | 2009 | m2 year growth implied / realised % [P22 22288882 459% ANANANAANAAA “10% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: BofA Merrill Lynch Global Research, Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg European equities: switch to outright long Healthcare We switch our European sector pair trade preferring Healthcare over Food & Beverage into an outright long in Healthcare. Both sectors have suffered versus the market from the rotation out of defensives and bond proxies. That has reduced the valuation of the Food & Beverage sector to less extreme levels. Meanwhile Healthcare looks very attractively valued and we see compelling risk reward in the sector on an outright basis at current levels. The fundamental bull case for Health rests on the strong pipeline of new products for the big cap pharma universe. Our sector analysts forecast EU Pharma to deliver a 2018- 21E EPS CAGR of 11%, up from mid-single digit levels in recent years. Historically that would justify a PE re-rating and a multiple for the pharma sub-sector nearer 17-18x than the current 13x 2018 PE. Chart 36: Extreme overvaluation in Food & Bev has moderated Chart 37: Healthcare PE - back near market multiple and patent cliff lows 1.80 ; 1.70 10 HealthCare 12m fwd PE relative ‘j 1.60 60 1.40 1.40 1.30 1.30 1.20 1.20 1.00 1.00 0.90 : ——— Food & Bev 12m fwd PE relative 0.90 0.80 2001 2003 2005 2007 2009 2011 2013 2015 0.80 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: BofA Merrill Lynch Global Research, Datastream, IBES, Bloomberg Source: BofA Merrill Lynch Global Research, Datastream, IBES, Bloomberg We believe the Republican clean sweep in the US elections represents a positive catalyst as it significantly decreases the potential for legislative initiatives to aggressively control drug pricing in the US. The catalyst for the sector to re-rate will come progressively from newsflow around new products. The next 12 months should see progress on this front with several of the European large caps expected to announce key data on important drugs in 2017. Bankof America 2 Global Cross Asset Strategy - Year Ahead | 30 November 2016 Merrill Lynch 19 HOUSE_OVERSIGHT_014450