1. Royal Dutch Shell
With the BG acquisition in the books, Shell is embarking on the necessary steps to compete in a world of $60 per barrel oil. Like the rest of the integrated group, Shell is working to reduce its cost base, which has become bloated during the past five years, by reducing headcount and improving its supply chain. The integration of BG is integral to Shell’s efforts, as it holds the potential for $4.5 billion of cost-reduction synergies.
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2. ITV Plc
ITV Plc operates a commercial television network in the UK. The Company's business segments are Broadcasting & Online and ITV Studios. It delivers content on demand through numerous platforms, both directly and via ITV Player.
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3. British American Tobacco
British American Tobacco’s full-year results were distorted significantly by foreign exchange movements, but on an underlying basis, the company is performing very well and delivered modest upside to our top-line forecast. We will likely raise our fair value estimate slightly to account for the time value of money, but we still think the tobacco group, including British American, is overvalued. We are reiterating our wide moat rating, which was clearly evident in the second half of the year through the realisation of 6% pricing.
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4. Lloyds Banking Group
Lloyds is now one of the sturdiest banks in Europe. It nearly destroyed itself in 2008 with its notorious acquisition of HBOS, and the U.K. government ended up with 43.5% of the combined group. Now, after years of bailouts and setbacks, the bank has essentially righted itself, and the government has largely sold down its stake.
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5. Glencore
Glencore ranks among the most diversified of the global megaminers. But because China is the key demand driver for nearly everything Glencore digs out of the ground, diversification benefits are limited. Weaker Chinese GDP growth and the end of the investment-led economic model portend tepid demand and lower prices for most of Glencore’s industrial commodities. Glencore's oil and agriculture businesses are less China-centric but smaller in size.
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