Long (CSTE: US) & Short (XHB: US)

SPECIAL SITUATIONS Sep 21, 2015 Special situations – LONG Caesarstone (CSTE: US) / SHORT S&P Homebuilders ETF XHB (XHB: US) Caesarstone (CSTE:US) shares fell more than 40% since its July highs of ~$72 per share on the back of two main events – slightly weaker than expected 2Q sales in the US, and a negative report published by short seller Spruce Point Management last month. To our view, none of these two events changes CSTE strong fundamentals and growth opportunity. Although growth rate expectation in the US was moderately missed in 2Q, we still see quartz countertops in their very early stages of a long-term share gain, and as such we believe it will continue to drive strong sales growth for the foreseeable future. Regarding Spruce Point report, we reviewed the different claims in the report and found most of them misleading and not backed by a solid basis (claims were mainly regarding CSTE’s product quality and management’s integrity - see our report from Aug 21). In addition, CSTE management issued earlier this month a very comprehensive response to this report which is available on CSTE’s website under Events & Presentations (titled “Response to Spruce Point Presentation”). Since its IPO in March 2012 and until recently, CSTE share enjoyed from a positive momentum and traded at a premium to its peers on the back of its accelerated growth (in the US as well as other markets such as Australia and Canada – markets in which its quartz countertops have been gaining market share), combined with the operational leverage of its business model. However, last two events has led to a very negative momentum in the share resulting with it being massively oversold to our view. We believe concerns regarding future growth and the investor report are overblown and create a rare opportunity to set a position in the stock. We note that next quarterly earnings can play out to be a major catalyst if no major deterioration in the U.S market. In the table below we present CSTE financial highlights compared to its peer group. As can be seen CSTE stands out for the highest growth rates and margins within its peer group (this is after Q2 revised guidance in which CSTE lowered FY15 revenue by 2%-4% but maintained Ebitda guidance), but it currently trades at a significant discount. This can also be observed on a mean reversion analysis (see below). We see current share price as a unique opportunity to set long CSTE and we recommend investors to hedge the position with the S&P homebuilders ETF XHB (on a dollar to dollar basis). CSTE growth rates, margins and pricing vs peers: Mean Reversion Analysis: Makor European Event Driven Research Dafna Yagur [email protected] UK Sales: +44 207 290 5772 1

MAKOR FLASH-LIGHT Aug 12, 2015 CSTE vs. XHB over the last 2 years: Makor European Event Driven Research Dafna Yagur [email protected] UK Sales: +44 207 290 5772 2

MAKOR FLASH-LIGHT Aug 12, 2015 Research Disclaimer This research has been prepared by Makor Capital Limited Opinions expressed will be the current opinions of those (“Makor Capital”) and is intended for professional or producing this material as of the date appearing on this qualified investors only. Makor Securities London Ltd material only. We expect those producing the material (“Makor Securities”) is distributing this material to its in this publication to update it on a timely basis but can clients who are Eligible Counterparties or Professional give no undertaking that they will do so and regulatory Clients under FCA Rules. It may also be disseminated to compliance or other reasons may prevent them from persons who are Investment Professionals within the doing so (or us from disseminating updated material). meaning of the Financial Services and Markets Act 2000 (Financial Promotion Order 2005). In the United States, Members and employees of Makor Securities London Ltd, Makor Capital only distributes this research material to employees of Makor Capital, Makor Capital Markets may major US institutional investors (as that term is defined in from time to time have long or short positions in Rule 15a-6 of the Securities and Exchange Act of 1934) and securities, warrants, futures, options, derivatives or other to SEC-registered broker-dealers or banks acting in a financial instruments referred to in this material. For broker–dealer capacity. This material is not intended for Makor Securities, this information is set out in our distribution to any other persons and should not be Conflicts of Interest Policy which is available on redistributed. If you do not fall into any of these request. Policies for the production of research from categories you should disregard it. other research providers are available on request. Unless otherwise stated, share prices provided within this Analyst Certification: The views expressed in this material are as at the close of business on the day prior to research report accurately reflect the personal views of the date of the material. the research analyst about the subject securities or issuers cover in this research report; and no part of the research Neither the whole nor any part of this material may be analyst's compensation was, is, or will be, directly or duplicated in any form or by any means. Neither should indirectly, related to the specific recommendations or any of this material be redistributed or disclosed to views expressed by the research analyst in this research anyone without prior consent. This material is issued for report. general information and discussion purposes only. None of Makor Securities, Makor Capital, Makor Capital Markets This material is meant for informational accepts liability whatsoever for any direct, indirect or purposes only. This material does not take into account consequential loss or damage of any kind arising out of the the particular investment objectives, financial situation or use of all or any of this material. needs of individual clients or other recipients. Before acting on this material, clients and other recipients should The services, securities and investments discussed in this consider whether it is suitable for their particular material may not be available to, nor are suitable for all circumstances and, if necessary, seek professional advice. investors. Investors should make their own investment decisions based upon their own financial objectives and This material should not be construed in any financial resources and it should be noted that investment circumstances as an offer to sell or solicitation of any offer involves risk, including the risk of capital loss. Past to buy any security or other financial instrument, nor shall performance is no guide to future performance. In relation it, or the fact of its distribution, form the basis of, or be to securities denominated in foreign currency, movements relied upon in connection with, any contract relating to in exchange rates will have an effect on the value, either such action.). In the United States, Makor Capital and favourable or unfavourable. Makor Securities do not offer securities services to U.S. persons except pursuant to SEC Rule 15a-6 only to major all investors. Investors should make their own investment US institutional investors and SEC registered broker- decisions based upon their own financial objectives and dealers or banks acting in a broker–dealer financial resources and it should be noted that investment capacity. Transactions in the United States must be involves risk, including the risk of capital loss. Past effected through the U.S. broker-dealer, Oscar Gruss & performance is no guide to future performance. In relation Son Incorporated. Oscar Gruss & Son has not prepared, to securities denominated in foreign currency, movements reviewed or distributed this material.This material is in exchange rates will have an effect on the value, either produced by providers which Makor Securities believes to favourable or unfavourable complete, not misleading or as to its fitness for the purpose intended and it should not be relied upon as such. Entities Makor Securities London Ltd is authorised and regulated by the Financial Conduct Authority (FCA registration number 625054) of Dover House, 34 Dover Street, London W1S 4NG. Makor Capital, company number 514456466, is incorporated in Israel and is a 100% held subsidiary of Makor Holdings Pte Ltd incorporated in Singapore. Makor Capital Markets SA, company number CH-660.2.999.011-0 is incorporated in Switzerland and is also a 100% held subsidiary of Makor Holdings Pte Ltd. Makor European Event Driven Research Dafna Yagur [email protected] UK Sales: +44 207 290 5772 3