Philips’ Q3 did not turn the market’s post-CMD sentiment. The main take-aways for us are that emerging markets remain fragile, Lighting markets remain weak and Philips appears to be struggling to control working capital and net debt. Near term
this triggers further mid-single digit downgrades to our numbers. Longer term, we worry about paradigm shifts in Philips’ end-markets (Structural slowdown in Healthcare, structural disruption in Lighting). We don’t think that these are solved
by the announced break-up, though under a “goldilocks” FY16E scenario we can see €27/share of value in the future businesses. But on a 12 month view, we lower our PT to €23/share. Following the recent sell-off, we see better value in quality names in the sector, for example Schneider (+35%), Atlas Copco (+27%) or Legrand (+17%). We have a clear preference for Osram as a restructuring play and see over 60% upside to our €43 PT, as well as more immediate catalysts in the form of more explicit communication about the strategy to become a niche lighting player.