Chart 76: A stronger dollar benefits agencies with global exposure Chart 77: Media now at a small discount to its 10y average vs market 0.9 105 1.30 0.85 100 1.25 ‘ \ 1.20 0.8 (a 0.75 ; 90 118 07 35 1.10 m9 | t 1.05 0.65 Phe Ws 80 400 0.6 Lae 75 0.95 ——— Media 12m fwd PE relative Ps —— Stoxx Media price relative fe ian 0.5 ——DXy Cumey (RHS) 65 i 0.45 60 0.80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg Source: BofA Merrill Lynch Global Research, Bloomberg, Datastream, IBES Overweight Healthcare 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. 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. Chart 78: Pharma’s improving growth outlook not reflected in PE Chart 79: Healthcare PE relative back near market multiple and lowest 3 Year Sales, EBIT and EPS CAGR Majors and 12 month forward PE ratio since 2011 when patent cliff was at its worst 15% 20 1.70 ——=HealthCare 12m fwd PE relative 4% 18 1.60 16 1.50 5% 14 1.40 0% ia 1.30 a 1.20 ; ' -5% . 1.10 -10% 6 1.00 t= tft tf et tft tt tT WwW Ys Yee ww w : SBESraeSe2@e RB StPEBESE SE BBBEBESBSEBEERB BEBE