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Meeting Agenda. Announcements Market Overview + Lecture: Clean Energy Portfolio Update Pitch: AGX Important Dates. Announcements. Announcements. Fall Portfolio Challenge. Build and manage your own virtual portfolio Compete with other McCombs students - PowerPoint PPT PresentationTRANSCRIPT
Meeting Agenda
Announcements Market Overview + Lecture: Clean Energy Portfolio Update Pitch: AGX Important Dates
Announcements
Announcements
•Build and manage your own virtual portfolio• Compete with other McCombs students
• Top three winners receive prizes in January
Register at usiteam.org/even
ts
Fall Portfolio Challenge
$5entry fee
Announcements
• Pitch a stock to a panel of industry professionals• Network with investors across the country
• Win $2500 in cash prizes
Saturday October 19SP
www.usiteam.org/events
THE TEXAS STOCK PITCH COMPETITION2013TX
Announcements
WorkshopsEvery Thursday 7-8PMSAC2.120
Topic this week:• Comps Analysis
Announcements
Free Wall Street Journal digital access for paid members
Contact [email protected] to receive login information
Market Overview: General News
Market Overview: General News
Market Overview: Clean Energy
Solar
Energy Smart Tech
Wind
S&P500
Market Overview: Clean Energy
Market Overview: Clean Energy
Japanese Energy Demand
What’s driving the clean energy rally?
Desire to cut fossil fuel consumption
China-EU trade dispute
Cutting Alternative Consumption
Saudi Arabia could invest 109B into solar to reduce domestic oil consumption
Japan is looking to fill the void left by a struggling nuclear program and stop using costly LNG imports
Japan Energy Consumption
Japan Energy Consumption
Japan Energy Consumption
Tariffs:
• What effect do tariffs have on:– Domestic producers– Foreign producers– Domestic energy prices
China-EU Dispute
• China announced tariffs on disposals for American and Korean solar polysilicon manufacturers
• US did this to China in 2012
• EU had tariffs up to 67%
• Effect on Chinese manufacturers?
China-EU Dispute
If tariffs expire or go down:
Sanity Check: What does it all mean?
• Expect to see Chinese producers buy domestic EU manufacturers to avoid tariffs
Acquisitions drive up stock prices in the industry (paying for control)
Discussion
• Opinion on the rally in solar/clean energy?– Will it last?– Is it too late to invest?– Any other factors to drive the rally?
Portfolio Update
Historical PerformanceInvested Capital Cash Exposure AUM Weekly Portfolio Return Cumulative Return Since 8/30/13 Exp-Adj Weekly Return Exp-Adj Cum. Return
8/30/2013 $4,396.8 $9,716.0 31.2% $14,112.8 - 0.0% 0.0%9/6/2013 $7,739.3 $6,556.9 54.1% $14,296.2 1.3% 1.3% 2.40% 2.4%9/13/2013 $4,328.6 $9,922.9 30.4% $14,251.5 (0.3%) 1.0% (1.03%) 1.3%9/20/2013 $4,381.9 $9,922.9 30.6% $14,304.8 0.4% 1.4% 1.22% 2.6%
Portfolio UpdateSector Exposures Dollar Amount % AllocationInformation Technology $1,526.32 40%Energy $0.00 0%Consumer Services $0.00 0%Consumer Goods $0.00 0%Financials $440.00 11%Industrials $0.00 0%Health Care $1,281.00 33%Utilities $0.00 0%Basic Materials $613.75 16%
Sector Exposures + CashInformation Technology $1,526.3 11%Energy $0.0 0%Consumer Services $0.0 0%Consumer Goods $0.0 0%Financials $440.0 3%Industrials $0.0 0%Health Care $1,281.0 9%Utilities $0.0 0%Basic Materials $613.8 4%Cash $9,922.9 72%
11% 0% 0% 0%
3% 0%
9%
0%
4%
72%
Information Technology
Energy
Consumer Services
Consumer Goods
Financials
Industrials
Health Care
Utilities
Basic Materials
Cash
Portfolio Update
University Securities Investment TeamArgan, Inc. (NYSE: AGX)
Manideep RaviDanial Bhatti
Kristi SparrowCarl Koehler
September 24, 2013
Strategic Capital Group
Company Overview
• Holdings Company in NE United States• Gemma Power Systems• Southern Maryland Cable
• Designs and builds power plants• Natural gas, shale, and alternative energy
Strategic Capital Group
Investment Thesis
• Under the radar of most investors• Current projects have very high potential• Special cash dividend ($0.75) recently
announced
Market Cap = 299.12 MCurrent Stock Price = 21.34Beta = 1.04Current Ratio = 2.7752 wk Hi/Low = 13.90-21.90
Strategic Capital Group
The Moxie Plants
• Two natural gas power plants in the Marcellus Shale Region of Pennsylvania
• Believed to hold the largest amount of natural gas in the United States
• Zero delivery costs• East Coast is a high demand market
Strategic Capital GroupIndustry and Market Overview Engineering,
Procurement & Construction
• Unbundling of natural gas for consumers• Heavily based on long-term contracts• Capital Intensive• Competing with very large firms• Competitive bid environment
Strategic Capital Group
Risks & Mitigating Factors
Economic uncertainty in construction
and manufacturing
Competition from much larger firms
Existing coal-fired power plants are difficult to
unseat
Slowed post-recessionary demand for
energy
Strategic Capital Group
Management
• Management owns 11% of shares in the company
• Executive compensation is heavily skewed towards equity
• Committed to taking only high-margin projects
CEO & Chairman – Rainier BosselmannCFO – Arthur Trudel
Strategic Capital Group
Competitors
Argan Company Comparables
Company Ticker Market Cap LTM EPS Current Stock Price P/E EV/EBITDA
Michael Baker BKR 392.2M 0.91 40.5 44.51 9.5x
Matrix Service Company MTRX 483.3M 0.9 18.38 20.42 8.3x
MYR Group, Inc. MYRG 505.9M 1.62 24.2 14.94 5.7x
Metka Group SA MTKAF 609.9M 1.47 14.35 9.76 5.5x
Tutor Perini Corp TPC 943.1M 2.38 20.26 8.51 6.4x
Dycom Industries DY 930M 1.04 28.06 26.98 7.8x
Argan, Inc. AGX 302.1M 2.24 21.51 9.60 3.1x
Avg: 20.85 6.61x
Discount: 54% 53%
Strategic Capital Group
Valuation 2011 2012 2013 2014 2015 2016Revenue $182,592.0 $141,850.0 $278,635.0 $282,641.0 $423,961.5 $466,357.65 Cost of Sales $153,469.0 $118,748.0 $226,900.0 $231,765.6 $351,888.0 $389,408.6 Gross Profit $29,123.0 $23,102.0 $51,735.0 $50,875.38 $72,073.46 $76,949.01 Gross Margin 15.9% 16.3% 18.6% 18.0% 17.0% 16.5%
SG&A Expenses $12,129.0 $11,186.0 $14,350.0 $16,958.5 $23,317.9 $25,649.7 EBIT $16,994.0 $11,916.0 $37,385.0 $33,916.9 $48,755.6 $51,299.3 EBIT Margin 9.3% 8.4% 13.4% 12.0% 11.5% 11.0%
NOPAT $11,046.1 $7,745.4 $23,265.0 $22,046.0 $31,691.1 $33,344.6 D&A $992.0 $789.0 $765.0 $741.0 $717.0 $693.0 CapEx $580.0 $1,738.0 $7,229.0 $1,512.0 $1,230.0 $1,726.0 FCF $11,458.1 $6,796.4 $16,801.0 $21,275.0 $31,178.1 $32,311.6 Present Value of Cash Flows $19,699.1 $26,730.2 $25,650.0
Terminal Value $ 387,738.9 Enterprise Value $ 335,967.8
Assumptions
WACC 8%
Tax Rate 35.0%
Exit Multiple 12.00x
Share Price $
21.54
CalculationsEnterprise Value $ 335,967.8
Less Net Debt $ (37,926.0)
Equity Value $ 373,893.8 Shares Outstanding 14,017
Value Per Share $
26.67
Implied Discount 23.84%
Important Dates
• Thursday, Sept. 26, 7-8PM- SCG Workshop #2SAC 2.120
• Saturday, October 12: Last day to register for TXSPwww.usiteam.org/events
• Saturday, October 19: Texas Stock Pitch Competition
Announcements
Saturday October 19SP
www.usiteam.org/events
THE TEXAS STOCK PITCH COMPETITION2013TX
Lecture: Multiples Analysis
ObjectivesWhat is a multiple?How is a multiple calculated?How is a multiple used?How do you evaluate a multiple?
Accounting in 2 minutes
Revenue
-Cost of Goods Sold
Gross Profit
-Operating Expenses
Operating Profit
-Taxes
Earnings
Price per unit x units sold
Cost of the inputs associated with the product
Literally the cost of the goods you sell
Cost of input per unit x units sold
Costs not associated with producing the good
Ex.) salaries paid to accountants or executives
The final residual profit after all expenses and taxes have been taken out
Also known as net income, net profit
Stock Price
AAPL
$467.41 per share
LNKD
$243.90 per share
If we want to invest in cheap stocks (buy-low-sell-high), which would you invest in?
Stock price is arbitrary!
A company wants to sell a bunch of stock onto a stock exchange to raise money (IPO)
The company needs to raise $100 million
The company gets to choose the stock price it wants to issue the stock at
1 million shares @ $100 each10 million shares @ $10 each100 million shares @ $1 each1 billion shares @ $0.10 each
Price is only used to gauge how much you make off a buy-and-sell trade. It is NOT a determinant of value
Back to multiples
• We want to figure out if an investment is cheap
Relative Valuation ExampleYour exotic friend asks you to go buy this fruit you’ve never seen for him, but to not spend too much for him.
The fruit is only sold by one vendor and costs $5 each, but you have no idea if that’s a good price. What do you do?
You compare it to other things that are like it, namely, other fruit!
You can refine your search further by comparing to other fruit that look and taste like it.
Relative Valuation ExampleYou look around and find a vendor who has a similar looking, but slightly larger fruit.
You look around and find a vendor who has a similar looking, but larger fruit, selling for $10 each.
$5 each
$10 each
In order to standardize the price and eliminate the factor of size, we can calculate the price per pound
Relative Valuation
• Much in the way price is arbitrary for fruit until you standardize it per unit of weight, stock price can be standardized per unit of earnings
Price per share
Earnings per share
Total earnings / total shares
=Tells you how much you pay per dollar of earnings
Investors tend to want to pay less for a dollar of earnings like paying less per pound of fruit
=
Price to Earnings Example
AAPL
=11.7x
LNKD
$243.90$476.41
$40.82 $.37
=676.6x
Interpreting a P/E Multiple
• Lower isn’t always better– For better, safer, growing companies,
investors are willing to “pay a higher multiple”– Sometimes a higher multiple indicates
expectation the company will “grow into it”
• Cheap has two meanings– You can get a good price– But that also means you could be getting bad
quality
Multiples Used
Price per share
Earnings per share
Price per share
Book value per share
How much you pay per dollar of earnings
How much you pay per dollar of resources of the business
Price per share
Cash Flow per shareLike P/E, but using cash flow (different from earnings)
Enterprise Value
EBITDALike P/E, but using better measurements of price and a proxy for cash flow/earnings. Most popular multiple
How to Evaluate Pitch’s Multiples