advisory board presentation - AIM

Transcription

ADVISORY BOARD
PRESENTATION
April 30th, 2012
AIM XXXIV
AIM ANALYST BIOS
Brady Blackett
Ryan Kennedy
Jennafer Newcomb
Englewood, CO
Coca-Cola, CarMax
Croton, NY
Alliant Technologies, Waste Management
Toms River, NJ
Chevron, Sonic
Oliver Castelino
Michael Kiel
Frederick Patterson
Manlius, NY
Potash, GIII Apparel
Livonia, MI
Qualcomm, Ford
Fremont, MI
Google, Polypore
Samuel DeLemos
Brian Kuske
Laura Ritter
Nashville, TN
Amazon.com, Flowserve
Naperville, IL
Dollar Tree, Harley-Davidson
Beverly Hills, MI
Cummins, Williams-Sonoma
Matthew Elijah
Wenhao Li
Adrianna Stasiuk
Tiburon, CA
KeyCorp, Priceline
Chengdu, China
Continental Resources, Manpower Group
Park Ridge, IL
Halliburton, lululemon athletica
Anand Hingway
John Madia
David Weinstein
Nagpur, India
Dick’s Sporting Goods, Gilead Sciences
Clarksburg, WV
Discover Financial, PNC
Pittsburgh, PA
Teradata, Apple
Kristin Iyer
Andrew Mayer
Ryan Wong
Fort Collins, CO
Starwood Hotels, Gap
Arvada, CO
Ecolab, Crown Castle
Diamond Bar, CA
Newmont Mining, Activision Blizzard
Andrew John
Brandon McGrath
David Young
Bellevue, WA
LabCorp, Fuel Systems Solutions
Denver, CO
Perrigo, AeroVironment
Seattle, WA
UnitedHealth Group, Assisted Living Concepts
Paul Karam
Paul Mooradian
Los Angeles, CA
eBay, RBC Bearings
Shrewsbury, MA
Caterpillar, Dover Corporation
AIM XXXIV
2
PRESENTATION AGENDA
 Personal Introductions
 Presentation Topics
I.
Objectives and Guidelines
II.
Economic Environment
III. Security Analysis
IV. Portfolio Performance Evaluation
V.
General Information
 Concluding Remarks
AIM XXXIV
3
I. OBJECTIVES AND GUIDELINES
AIM XXXIV
4
OVERVIEW
 Course Overview
-
Blend traditional academic objectives with practical experience in
portfolio management
-
Provide analysts with thorough grounding in process of portfolio
management
 Analyst Selection Process
-
AIM XXXIV
Analysts are selected from a pool of candidates based on academic
record and diverse backgrounds
5
ANALYST RESPONSIBILITIES
 Stock Selection
-
First Round - Analysts assigned a current portfolio position and
complete a comprehensive security analysis
-
Second Round - Analysts select a second equity and complete
comprehensive security analysis
 Security Analysis
-
Company Background
-
Industry Analysis
-
Fundamental Analysis
-
Earnings Forecast
-
Technical Analysis
-
Valuation Analysis
AIM XXXIV
6
GROUP RESPONSIBILITIES

Industry/Sector Analysis
-

Economic Analysis
-

Recent trends: unemployment, inflation, GDP growth, etc.
Current events
Focus on factors with most relevance to portfolio
Portfolio Performance Analysis
-

Industry and sector overviews
Historical performance
Outlook
Performance benchmark comparisons
Risk-adjusted performance measures
Industry composition
Best and worst performers
Trading Group
-
AIM XXXIV
Coordinates trading activity for portfolio
Works closely with ND Investment Office
7
SELECTION PROCESS
 Analysts discuss inputs, assumptions, and drivers
 Analysts give buy, sell, or hold recommendations based on security
analysis performed and intrinsic valuations
 Final portfolio decisions are voted upon and require majority vote of all
analysts
 Long/short hedge position established
AIM XXXIV
8
INVESTMENT PHILOSOPHY
 Investment objective
-
Outperform S&P 500 over long time horizon
-
Outperform secondary indices, Russell 2000 and HBI (65% S&P 500
+ 35% Russell 2000)
 Risk managed by diversification and allocation between small, mid, and
large-cap stocks
 Investment decisions
-
Fundamental analysis
-
Bottom-up approach
AIM XXXIV
9
INVESTMENT POLICIES
 Only equities traded on major US exchanges
-
No bonds, ADRs, or derivative instruments
-
No margin purchases or short selling
 Portfolio target allocation
-
35% in small (<$1B) and mid-cap ($1B-$5B) stocks
-
65% in large cap (>$5B) stocks
-
+/- 10% boundary
-
0% long-term target for cash holdings
 No individual stock position will exceed 10% of portfolio
AIM XXXIV
10
MARKET CAPITALIZATION
AIM XXXIII
AIM XXXIV
11.5%
13.8%
86.2%
88.5%
Small & Mid-Cap
Large Cap
AIM XXXIV
11
ETHICAL POLICIES
 AIM will not invest in any company whose values are not consistent with
those of the University of Notre Dame
 Includes but is not limited to
-
Abortifacients
-
Birth Control
-
Tobacco
 Perrigo was removed from portfolio for their involvement with
abortifacients
AIM XXXIV
12
II. ECONOMIC ENVIRONMENT
AIM XXXIV
13
ECONOMIC DISCUSSION








Current Economic Environment
GDP Projections
Consumption
Housing
Net Exports
Unemployment
Inflation
Effect on AIM Portfolio
AIM XXXIV
14
FAILURE TO RECOVER
Time to Recover Job Losses in Post-WWII Recessions
Source: Calculated Risk
AIM XXXIV
15
OUR FORECAST
Annualized GDP Growth with 2012 Forecast
6%
4%
Percent Change
2%
0%
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
-2%
-4%
-6%
-8%
-10%
Source: U.S. Bureau of Economic Analysis
AIM XXXIV
16
LACK OF CONSUMPTION
Growth of GDP Components
$16.0
$14.0
Investment
Trillions of 2005 Dollars
$12.0
$10.0
Government
$8.0
+24%
$4.0
+4%
Consumption
+16%
+24%
$6.0
+4%
+16%
Net Exports
$2.0
$0.0
1996
2001
2006
2011
-$2.0
Source: U.S. Bureau of Economic Analysis
AIM XXXIV
17
PRIVATE CONSUMPTION
Real Personal Consumption Expenditures
Seasonally Adjusted (Billions)
$9,800
5%
$9,700
4%
$9,600
3%
$9,500
2%
$9,400
1%
$9,300
0%
$9,200
-1%
$9,100
-2%
$9,000
-3%
$8,900
-4%
$8,800
-5%
$8,700
-6%
I
II III IV I
II III IV I
II III IV I
II III IV I
II III IV I
II III IV I
II III IV
2006
2007
2008
2009
2010
2011
2012
Real PCE
AIM XXXIV
Annualized Growth Rate
Source: BEA
18
PRIVATE CONSUMPTION
Real Disposable Personal Income
Annual Rate
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
I
II III IV
2006
I
II III IV
2007
I
II III IV I
II III IV I
II III IV
2008
2009
2010
I
II III IV
2011
I
II III IV
2012
Source: BEA
AIM XXXIV
19
PRIVATE CONSUMPTION
Personal Savings Rate
Annual Rate
14%
12%
10%
8%
6%
4%
2%
0%
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
Source: BEA
AIM XXXIV
20
HOUSING SECTOR
Have we reached a bottom in housing prices?
“The crash is over” – Mark Zandi, Moody’s Chief Economist 4/25/12
Source: Standard and Poor‘s, Derived
AIM XXXIV
21
HOUSING SECTOR
Will housing leap forward?
*Builder Confidence is a housing market index compiled by Wells Fargo/NAHB monthly
Source: NAHB/Wells Fargo Housing Market Index, U.S. Census Bureau, NBER.
AIM XXXIV
22
HOUSING SECTOR
Will housing leap forward?
*Builder Confidence is a housing market index compiled by Wells Fargo/NAHB monthly
Source: NAHB/Wells Fargo Housing Market Index, U.S. Census Bureau, NBER.
AIM XXXIV
23
HOUSING SECTOR
Foreclosures causing a “gap”
Source: NAR
AIM XXXIV
24
HOUSING SECTOR
Bottom is not really here… prices have more room to fall
16%
8,000
14%
7,000
12%
6,000
10%
5,000
8%
4,000
6%
3,000
4%
2,000
2%
1,000
0%
0
Number of Mortgaged Homes (000s)
Percent of all Loans
Mortgage Delinquencies and Foreclosures by Period Past Due, All Loans
Outstanding: 2002-2011
I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV
2002
2003
2004
2005
30 days
2006
60 days
2007
90+ days
2008
2009
2010
2011
Foreclosed
Source: MBA National Delinquency Survey, Lender Processing Services
AIM XXXIV
25
NET EXPORTS
Net Exports of Goods and Services since 1975
$100
$0
-$100
-$200
Billions
-$300
-$400
-$500
-$600
-$700
-$800
-$900
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
Source: Federal Reserve Bank of St. Louis
AIM XXXIV
26
INTERNATIONAL EFFECTS
China



Europe


Industrial growth slowing at
approximately 11.4% versus normal
15%
Trade to European Union grew 4.7%
year-over-year, but fell 1.1% for the
first two months of 2012
Rising domestic labor costs threaten
slowing international trade
Growth forecasts continue to be cut
Higher costs of borrowing despite
successful Spanish and Italian
auctions
Dutch PM Mark Rutte‘s resignation
signifies trouble in AAA-rated
country

HSBC Flash Manufacturing
PMI
European Countries' Unemployment
Rate
56
54
52
50
48
46
44
25%
Spain
20%
Latvia
15%
Ireland
10%
Greece
5%
United Kingdom
0%
01-2011
04-2011
07-2011
10-2011
01-2012
04-2012
2000
2002
2004
2006
2008
2010
Source: Eurostat, The Economist, BBC News
AIM XXXIV
27
UNEMPLOYMENT
Unemployment Rate
12%
10%
8%
6%
4%
2%
0%
1970
1975
1980
1985
1990
1995
2000
2005
2010
Employment Ratios
68%
66%
64%
62%
60%
58%
56%
1970
1975
1980
1985
Participation Rate
1990
1995
2000
2005
2010
Civilian Employment-Population Ratio
AIM XXXIV
28
UNEMPLOYMENT
Mean Duration of Unemployment
45
40
35
Weeks
30
25
20
15
10
5
0
1948
1952
1956
1961
1965
1970
1974
1978
1983
1987
1992
1996
2001
2005
2009
AIM XXXIV
29
INFLATION
Consumer Price Index (% change)
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
• Fed maintaining 0% - 0.25% Fed Funds rate through 2014
• Anticipate 3% annual inflation rate in 2012 due to slower recovery
AIM XXXIV
30
PORTFOLIO IMPACT
More Supportive
Less Supportive
 Dick‘s Sporting
Goods
 Activision
Blizzard
AIM XXXIV





Alliant Tech

AeroVironment 
Coca-Cola

eBay

Apple




UnitedHealth Group
Lab Corp
Williams-Sonoma
KeyCorp
PNC Financial
Discover Financial
Gilead Sciences
Google






CarMax Inc
Cummins
Caterpillar
Flowserve
Qualcomm
Teradata Corp




Dollar Tree
Potash
Chevron
Continental
Resources
 Halliburton
31
III. SECURITY ANALYSIS
AIM XXXIV
32
SECURITY SELECTION PROCESS
 Bottom-up approach to security selection
 Analysts complete seven reports that address the following areas of concern:
- Company Background
- Industry Analysis
- Fundamental Analysis
- Beta
- Earnings Forecast
- Final Valuation and Recommendation
- Technical Analysis
 All seven reports are considered and each analyst makes a buy, sell, or hold
recommendation
AIM XXXIV
33
ANALYST AGENDA
Analyst
Stock
Focus
Sam DeLemos
Flowserve
Fundamentals
David Weinstein
Apple
Earnings
John Madia
PNC Financial Services
Multiples Valuation
Brandon McGrath
AeroVironment
Multiples Valuation
Adrianna Stasiuk
lululemon athletica
Discovery
Andy John
Fuel Systems Solutions
Scenario Analysis
Brady Blackett
CarMax
Technical Analysis
AIM XXXIV
34
FLOWSERVE CORPORATION
FLS: 1 Year Price Chart
$140
$120
Price:
$115.93
Market Cap:
$6.3B
P/E (FFY):
11.5x
EPS (TTM):
$7.64
Analyst Coverage:
$100
$80
10
$60
Apr-11
FFY = Forward Fiscal Year
TTM = Trailing Twelve Months
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Source: Yahoo! Finance, Analyst Derived
35
RATIO ANALYSIS
Ratio analysis reveals
significant management effect

Focus on industries/economies with
strong demand

Protect gross margins through product
mix and differentiation

Significant outperformance on the
bottom line

Low financial risk and operating
volatility translate into high riskadjusted returns
Key Ratios 2011
Return on Equity
Industry Average
Capital Turnover
Industry Average
Gross Profit Margin
Industry Average
Net Profit Margin
Industry Average
18.81%
11.60%
1.26x
0.90x
33.56%
19.70%
9.50%
3.40%
Source: Analyst Derived
AIM XXXIV
36
VALUATION & THESIS
Recommendation - Buy
Valuation Method
Weight
Value
Contribution
Discounted Cash Flow
80%
$126.88
$101.50
Forward Price/Earnings
10%
$127.58
$12.76
Forward Price/Sales
10%
$116.69
$11.67
Final Valuation
$125.93
Market Price (4/18/12)
$113.46
Estimated Upside/(Downside)
11.0%
Investment Thesis:
 Demonstrated ability to capture efficiencies and increase sales, while mitigating
risks through revenue mix diversification
 Multiple expansion as market recognizes the relative value of this best in breed
operator
AIM XXXIV
37
APPLE INC.
AAPL: 1 Year Price Chart
$700
$600
Price:
$603.00
Market Cap:
$563.8B
P/E (FCY):
13.4x
EPS (TTM):
$41.01
Analyst Coverage:
$500
$400
53
$300
Apr-11
FCY = Forward Calendar Year
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
38
EARNINGS
Highlights
AAPL: EPS - Reported vs. Consensus
$14.00
2012 Q1 (CY):
 35.1M iPhones
$12.30
$12.00
 11.8M iPads
 Gross Margin: 47.4%
2011 Q4 (CY):
+26.8%
$10.00
$9.70
$8.00
Reported
 37.0M iPhones
 15.4M iPads
Consensus
$6.00
 Gross Margin: 44.7%
$4.00
$2.00
$0.00
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12
Source: Bloomberg, Sec.gov
AIM XXXIV
39
COMPETITION
Industry Volatility
Global
Smartphone Platform
Share
Global
Smartphone
PlatformMarket
Market
Share
U.S. Smartphone Platform Market Share
60%
60%
51.0%
50.1%
50%
50%
48.8%
47.0%
40%
40%
30.2%
30%
30%
20%
20%
20.0%
19.1%
16.4%
14.0%
13.4%
12.6%
10%
10%
0%
3.9%
1.5%
0.0%
2005
GOOG
2009
AAPL
2010
RIMM
2011
MSFT
2012
NOK
10.5%
9.0%
4.0%
1.4%
0%
2009
GOOG
2010
AAPL
RIMM
2011
MSFT
NOK
Source: comScore, Nielsen
AIM XXXIV
40
HISTORICAL COMPARISON
MSFT* vs. AAPL**
500%
450%
400%
MSFT
AAPL
350%
300%
250%
200%
150%
100%
50%
0%
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
*MSFT price data from Dec-1996 to Dec-2002
**AAPL price data from Apr-2009 to Apr-2012
AIM XXXIV
41
VALUATION & THESIS
Recommendation - Sell
Valuation Method
Weight
Value
Contribution
25%
$574.73
$143.68
75%
$525.86
$394.40
Final Valuation
$538.08
$608.34
(11.6%)
Investment Thesis:
 Record earnings bring sky-high expectations in a volatile industry
 Consumer-oriented products lack stickiness
 AAPL is the 800-lb gorilla in the room
 No more Jobs
AIM XXXIV
42
PNC FINANCIAL SERVICES
PNC: 1 Year Price Chart
$70
Price:
$66.78
Market Cap:
$35.3B
P/E (FFY):
10.3x
EPS (TTM):
$6.05
Analyst Coverage:
$60
$50
38
$40
Apr-11
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Source: Bloomberg, Yahoo! Finance
43
KEY ASSUMPTIONS
Net Interest Margin



Net Charge-Offs


Margin compression
ST rates near zero
Increased industry competition
PNC: NIM and 5 Year Treasury –
3 Month LIBOR Spread Analysis
Historically less than peer group
Return to normal levels with time
PNC: Net Charge-Offs to Average Total
Loans Analysis
2.50%
5.00%
3.92%
4.00%
3.50%
3.00%
2.00%
1.50%
1.40%
2.00%
1.06%
1.00%
0.95%
0.00%
-1.00%
2001 2003 2005 2007 2009 2011 2013 2015
Net Interest Margin
5 Yr Treasury - 3 Mo Spread
1.00%
1.06%
0.70%
0.50%
0.00%
2002
2004
2006
2008
2010
2012
2014
2016
PNC NCOs/Tot. Avg. Loans
Peer Group NCOs/Tot. Avg. Loans
Source: Capital IQ, Company Financial Statements
AIM XXXIV
44
MULTIPLES ANALYSIS
Implied Forward P/E


Price / Tangible Book Value



Currently trading at 10.0x
Normal trading at 13.3x
PNC: Implied Forward P/E
Currently trading at 1.42x
Peer group mean: 1.54x
Peer group median: 1.27x
PNC: Price / Tangible Book Value
40x
3.5x
3.08x
35x
3.0x
30x
2.5x
25x
2.30x
2.0x
20x
1.87x
15x
1.5x
10x
1.0x 0.76x
1.24x
0.96x
1.29x
1.42x
1.06x
10.0X
0.5x
0x
0.0x
BAC
KEY
STI
CMA
RF
ZION
FITB
HBAN
FNFG
JPM
PNC
COF
WFC
BBT
MTB
USB
BK
5x
Source: Capital IQ, Company Financial Statements
AIM XXXIV
45
VALUATION & THESIS
Valuation Method
Weight
Value
Contribution
25%
$80.80
$20.20
Price/Tangible Book Value
25%
$71.01
$17.75
Discounted Cash Flow to Equity
50%
$87.21
$43.61
Final Valuation
$81.56
$63.78
27.9%
Investment Thesis:
 Strong performing assets and extremely well capitalized
 Ability to make acquisitions at good multiples, disciplined to pass unless a cultural fit
AIM XXXIV
46
AEROVIRONMENT, INC.
AVAV: 1 Year Price Chart
$40
$35
Price:
$24.40
Market Cap:
$532M
P/E (FFY):
16.8x
EPS (TTM):
$1.36
Analyst Coverage:
$30
$25
14
$20
Apr-11
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Source: Bloomberg, YahooFinance, Analyst Derived
47
BUSINESS DESCRIPTION
Electric Vehicle Charging
Unmanned Aircraft Systems (UAS)

Focus on production of Small UAS

Passenger and industrial vehicle
charging stations

Awarded every major Small UAS
contract by the Dept. of Defense

Partner with auto manufacturers
Source: Company Financials, Analyst
AIM XXXIV
48
MULTIPLE ANALYSIS: P/E
Implied Forward P/E Comparison
70
Implied Forward P/E
60
50
40
AVAV
IRBT
30
NOC
S15AERO
20
10
0
AVAV
Subjective forward P/E Multiple
FYE 2013 EPS
Implied Value
19.0x
$1.43
$27.17
Source: Analyst Derived
AIM XXXIV
49
MULTIPLE ANALYSIS: EV / EBITDA
Takeover Target: EV / EBITDA Multiple
UIC EV / EBITDA Multiple
Avg. Multiple 2011 Defense
Multiple Weight
Contribution
12.0x
60%
7.2x
9.5x
40%
3.8x
Subjective EV / EBITDA Multiple
AVAV LTM EBITDA ($ millions)
11.0x
$57
AVAV Implied EV
$630
LTD ($ millions)
Cash ($ millions)
Net Cash/(Debt) ($ millions)
$12
$154
$143
Implied MV of Equity ($ millions)
$773
Weighted Average Diluted Shares (millions)
22.2
Implied Value Per Share
Stock Price (4/18/12) voting day
Control Premium
$34.81
$25.08
38.80%
Source: Capital IQ, Fennebreque & Co., Analyst Derived
AIM XXXIV
50
VALUATION & THESIS
Valuation Method
Weight
Value
Contribution
35%
$27.14
$9.50
EV/EBITDA
35%
$34.81
$12.18
30%
$48.58
$14.57
Final Valuation
$36.25
$25.08
44.5%
Investment Thesis:

Positioned to capitalize from high growth in UAS and electric vehicle markets

Limited downside due to relative insulation from budget cuts and stronghold on
small UAS with DOD
AIM XXXIV
51
LULULEMON ATHLETICA, INC.
LULU: 1 Year Price Chart
$80
$70
Price:
$74.71
Market Cap:
$10.9B
P/E (FFY):
37.6x
EPS (TTM):
$1.29
Analyst Coverage:
$60
$50
25
$40
Apr-11
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Source: Yahoo! Finance
52
FORECAST IMPLICATIONS
Disciplined Growth

Economic Moat
300+ stores by 2016

Showroom model

$2,000 sales/ft2 in 2011

High energy, ―kitchen party‖ feel
Unique
Stores
People
Community
Technical
Product
Source: Company SEC filings
AIM XXXIV
53
DISCOVERY
Assistant Store Manager
Nicole Crippen – Assistant Manager,
SoHo store, NYC
Channel Check
Customer – North Halsted Street store,
Chicago, IL
Source: Analyst
AIM XXXIV
54
VALUATION & THESIS
Recommendation – Don’t Buy
Valuation Method
Weight
Value
Contribution
30%
$63.87
$19.16
Forward Price/Sales
30%
$83.58
$25.07
Price/Book Value
10%
$87.91
$8.79
30%
$58.07
$17.42
Final Valuation
$70.45
$74.78
(6.0%)
Investment Thesis:
 Great company, bad stock
 Well managed company slated for high growth
 Currently trading at rich multiples
AIM XXXIV
Source: Analyst
55
FUEL SYSTEMS SOLUTIONS
FSYS: 1 Year Price Chart
$30
Price:
Market Cap:
$24.12
$25
$482.7M
P/E (FFY):
41.6x
EPS (TTM):
$0.26
Analyst Coverage:
$20
7
$15
Apr-11
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Source: Bloomberg, Capital IQ, Analyst Derived
56
SCENARIO ANALYSIS
Worst
Base
Best
AFV technology unpopular
AFV adoption slow, steady
Legislation: NAT GAS act
FSYS sales limited to Fleet
vehicle, Industrial buyers
Steady infrastructure build:
CLNE, GE, CHK
Tech: Leapfrogged by
competition
Ford, GM relationships
No US government catalyst
AIM XXXIV
57
SCENARIO ANALYSIS
Revenue
Revenue($M)
($T)
Net Income ($M)
1000
80
800
60
Base
600
Best
Base
40
Best
Worst
400
Actual
200
Worst
20
Actual
0
US Light Vehicle Sales Forecast
2011
2012E
2013E
2014E
2015E
2016E
Base
5,630
6,788
11,668
23,199
35,785
50,691
Best
5,630
7,367
16,230
48,682
67,553
71,454
Worst
5,630
6,209
8,020
8,771
10,156
11,036
Source: Company Financials, Analyst Derived
AIM XXXIV
58
CORPORATE GOVERNANCE
Related Party Transactions
Other Governance Issues

$34M in Related Party Transactions (2011)

$1.8M/yr in Lease payments to CEO/family

CEO/family has 30%+ ownership: $17M

$1.6M in loans to Rohan BRC (related party),
all written off

CEO/family has 85%+ ownership: $3M

CEO serves on 7 related party Boards

Foreign Subs: Business Interests in Iran

Common themes in ‗09-‘10
“We cannot assure you that the terms of the transactions with
these various related parties are on terms as favorable to us as
those that could have been obtained in arm's-length
transactions with third parties…” – FSYS 2011 10-K
Source: Company Financials
AIM XXXIV
59
VALUATION & THESIS
Recommendation – Don’t Buy
Valuation Method
DCF - Base
DCF - Best
DCF - Worst
Takeover Valuation
Forward Price/Sales
Final Valuation
Weight
Value
Contribution
30%
5%
30%
15%
10%
10%
$23.25
$50.07
$11.20
$47.13
$26.47
$21.80
$6.98
$2.50
$3.36
$7.07
$2.65
$2.18
$24.74
$22.05
14.5%
Investment Thesis:
 Bullish on company and industry fundamentals
 Don’t Buy for FSYS => weak Corporate Governance, high fraud risk
AIM XXXIV
60
CARMAX, INC.
KMX: 1 Year Price Chart
$40
$35
Price:
$31.30
Market Cap:
$7.1B
P/E (FFY):
14.8x
EPS (TTM):
$1.79
Analyst Coverage:
$30
$25
15
$20
Apr-11
AIM XXXIV
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
61
COMPANY BACKGROUND
Description

Largest and only nationwide used car
retailer in the USA
-




97% sale rate at wholesale
110 stores in 52 US markets
Double the market share of nearest
competitor
Distinct competitive advantages
-


99%+ sale rate of used car inventory
Major player in auction business
-
Revenue Information
No haggle pricing
Pricing algorithm
Reconditioning process
National scale

$10B in revenues
7.4% revenue CAGR 2006 – 2011 vs.
industry decline of 6.7%/year
90% of revenue from 0 – 6 yr. old
cars with less than 60k miles
Services
& Other,
2.5%
New, 2.0%
Wholesale,
17.2%
Used,
78.2%
FY2012 revenue by type
Source: KMX SEC filings, IBISWorld
AIM XXXIV
62
TECHNICAL ANALYSIS
50/200 Day Moving Average – 1 Year
Adj. Close
50 day SMA
200 day SMA
$40
$35
$30
$25
$20
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
BUY: Golden Cross in early 2012
AIM XXXIV
Feb-12
Apr-12
63
TECHNICAL ANALYSIS
Bollinger Bands – 1 Year
BUY Signal
Adj. Close
-2 STDEV
SELL Signal
+2 STDEV
$40
$35
$30
$25
$20
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
BUY: Crossed lower band in April
AIM XXXIV
Feb-12
Apr-12
64
TECHNICAL ANALYSIS
Support & Resistance – 1 Year
$40
$35
$30
$25
$20
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
BUY: Currently trading at support level
AIM XXXIV
Feb-12
Apr-12
65
VALUATION & THESIS
Valuation Method
Weight
Value
Contribution
60%
$39.75
$23.85
30%
$34.57
$10.37
Forward Price/Sales
10%
$33.27
$3.33
Final Valuation
$37.55
$31.74
18.3%
Investment Thesis:
 Most dominant player in the industry with increasing competitive advantages
 Room in market to more than double its store count
AIM XXXIV
66
IV. PORTFOLIO PERFORMANCE
AIM XXXIV
67
RETURN COMPARISON
Performance of $100 Invested on 1/1/96
$600
$518
$500
$400
$300
$200
$100
$0
1996
1997
1998
1999
2000
2001
AIM
2002
2003
S&P 500
2004
2005
2006
Russell 2000
2007
2008
2009
2010
2011
2012
HBI
Source: Mellon Workbench
AIM XXXIV
68
HISTORICAL RETURNS
AIM Portfolio Returns vs. Benchmark Returns (Annualized)
30%
25%
Total Annualized Return
20%
15%
10%
5%
0%
1 Year
3 Years
5 Years
Since Inception
-5%
Stud Inv II
HBI
S&P 500 - Total Return Index
Russell 2000 Index
AIM XXXIV
69
SECTOR ALLOCATIONS
AIM Sector Weights vs. Benchmarks
25%
20%
15%
10%
5%
0%
AIM
S&P 500
Russell 2000
*As of 04/20/2012
AIM XXXIV
Financials
Healthcare
11.8%
14.7%
22.6%
12.0%
11.3%
11.2%
Consumer
Disc.
15.2%
11.2%
13.7%
Consumer
Staples
3.5%
10.9%
5.5%
Energy
Info. Tech
Materials
11.5%
11.0%
5.5%
14.9%
20.7%
15.9%
3.3%
3.5%
5.2%
Telecom &
Industrials
Utilities
4.0%
19.8%
6.2%
10.5%
3.3%
17.0%
70
PERFORMANCE MEASURES
Sharpe Ratio
• Risk-Reward performance measure, indicating excess return per unit of variation
in investment returns
(𝑅𝑝 − 𝑅𝑓 )
𝑆=
𝜎𝑝
Where:
𝑅𝑝 is the portfolio return
𝑅𝑓 is the risk-free rate
σp is the standard deviation of the portfolio
AIM XXXIV
71
Sharpe Ratio Comparison
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
AIM
S&P
HBI
1 Yr
1.06
0.59
0.38
3 Yr
1.58
1.40
1.33
5 Yr
0.31
0.15
0.16
Since Inception
0.47
0.46
0.45
AIM XXXIV
72
Jensen’s Alpha
• Measures Portfolio’s Excess Return on a Risk Adjusted Basis (CAPM)
• Formula:
αJensen = Rp – [Rf + βp* (RM – Rf)]
Where:
Rp
Rf
βp
RM
AIM XXXIV
is the portfolio return
is the risk-free rate
is the portfolio beta
is the market return
73
Annualized Jensen's Alpha
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
AIM v. S&P
AIM v. HBI
1 Yr
7.96%
11.06%
3 Yr
4.56%
5.59%
5 Yr
3.56%
3.34%
Since Inception
3.26%
3.01%
AIM XXXIV
74
ATTRIBUTION ANALYSIS
Total Net
Management Effect
Allocation
AIM XXXIV
Selection
75
P2
SelectionSelection
Interaction
P1
Allocation
0
AIM XXXIV
Q1
Q2
76
9%
8.14%
8%
6.87%
Outperformance vs S&P
7%
6%
5%
4.37%
4.12%
4%
3.41%
3%
2%
1.95%
1.51%
1.47%
1%
0%
1 year
-0.38%
3 years
5 years
-1%
Allocation
Selection
Net Total Management
AIM XXXIV
77
5-YEAR ATTRIBUTION BY SECTOR
1.5%
1.08
1.17
1.05
1.0%
0.58
0.58
0.40
0.5%
Contribution
0.15
0.20
0.14
0.10
0.0%
-0.02
-0.03
-0.18
-0.32
-0.5%
-0.21
-0.59
-0.17
-0.34
-0.51
-0.01
-0.11
-0.13
-0.28
-0.01
-0.14 -0.15
-0.18
-0.51
-1.0%
-1.5%
-1.55
-2.0%
-2.06
-2.5%
Financials
Health Care
Utilities
Consumer
Consumer
Discretionary
Staples
Allocation
All values in Percent
AIM XXXIV
Selection
Energy
Information
Technology
Materials
Telecomm
Services
Industrials
Total Net Management
78
CONSUMER DISCRETIONARY
30%
1.5%
25.92%
1.17%
25%
1.0%
20%
0.58%
0.5%
15%
9.78%
10%
0.0%
5%
1.36%
-0.5%
0%
-0.59%
-1.95%
-5%
Portfolio Weight
S&P Weight
Portfolio Return
S&P Return
-1.0%
Allocation
Selection
AIM XXXIV
79
5-YEAR ATTRIBUTION BY SECTOR
1.5
1.08
1.17
1.05
1.0
0.58
0.58
0.40
Contribution in Percentage
0.5
0.15
0.20
0.14
0.10
0.0
-0.02
-0.03
-0.18
-0.32
-0.5
-0.21
-0.59
-0.17
-0.34
-0.51
-0.01
-0.11
-0.13
-0.28
-0.01
-0.14 -0.15
-0.18
-0.51
-1.0
-1.5
-1.55
-2.0
-2.06
-2.5
Financials
Health Care
Utilities
Consumer
Discretionary
Allocation
All values in Percent
AIM XXXIV
Consumer
Staples
Selection
Energy
Information
Technology
Materials
Telecomm
Services
Industrials
80
INFORMATION TECHNOLOGY
20%
0.0%
16.05%
15%
-0.5%
10.93%
-0.51%
10%
-1.0%
5%
3.21%
0%
-1.5%
-1.55%
-5%
-2.0%
-10%
-2.06%
-13.44%
-15%
Portfolio Weight
S&P Weight
Portfolio Return
S&P Return
-2.5%
Allocation
Selection
AIM XXXIV
81
WORST PERFORMING STOCKS
LTM Return (as of 4/15/12)
0%
HAL*
Halliburton *
-5%
NEM (HAL)
-10%
ATK
-15%
-20%
HAL
Alliant
Techsystems
Inc.
ATK
(ATK)
Potash
Corp.
POT
(POT)
-22.6%
POT
Sonic Corp.
SONC
(SONC)
NEM
Newmont
Mining
(NEM)
SONC
-7.0%
-14.0%
-21.9%
-25%
-25.7%
-30%
* Holding Period Return
AIM XXXIV
Source:Yahoo! Finance
82
BEST PERFORMING STOCKS
LTM Return (as of 4/15/12)
90%
84.8%
HAL*
80%
Apple
(AAPL)
70%
Dollar
Tree
(DLTR)
60%
ATK
50%
NEM
68.8%
NEM
POT
SONC
HAL
40%
POT
37.1%
SONC
34.6%
30.7%
30%
ATK
20%
Discover
Financial
Services
(DFS)
Teradata
Corp.*
(TDC)
UnitedHealth
Group
(UNH)
10%
0%
* Holding Period Return
AIM XXXIV
Source:Yahoo! Finance
83
CURRENT PORTFOLIO ALERT
Policy and Procedure:
The portfolio target allocation is:

35% in Small (< $1 billion) & Mid-Cap stocks ($1-$5 billion)

65% in Large Cap stocks (> $5 billion)

(With a +/- 10% boundary)
Current Weighting
Small & Mid-Cap
Large Cap
11.5%
88.5%
Using the current definitions and guidelines, the portfolio is too
heavily weighted in large cap stocks.
AIM XXXIV
84
PORTFOLIO PROPOSAL
New definitions at the suggestion of AIM XXXIV:
―Small Cap‖ – market capitalizations of less than $2 billion
―Mid-Cap‖ – market capitalizations from $2 billion to $10 billion
―Large Cap‖ – market capitalizations over $10 billion
With New Weighting
AIM XXXIV
Small & Mid-Cap
Large Cap
30.8%
69.2%
85
PORTFOLIO TURNOVER
BUY
SELL
HOLD
 Activision Blizzard  Amazon (AMZN)
(ATVI)
 Ecolab Inc. (ECL)
 AeroVironment Inc.  Newmont Mining
(AVAV)
(NEM)
 Alliant Tech Systems  Dollar Tree (DLTR)
(ATK)
 eBay (EBAY)
 Apple (AAPL)
 Gilead Sciences
 Carmax (KMX)
 RBC Bearings
(ROLL)
 Chevron (CVX)
 Google (GOOG)
 Coca Cola (KO)
 Halliburton (HAL)
 Sonic Corp.
(SONC)
 Continental
Resources (CLR)
 KeyCorp (KEY)
 Starwood Hotels
(HOT)
 Cummins (CMI)
 Potash Corp. (POT)
 Dick‘s Sporting
Goods (DKS)
 QualComm (QCOM)
 Flowserve Corp.
(FLS)
 PNC Financial
Services (PNC)
 Williams-Sonoma
(WSM)
 Caterpillar (CAT)
 Discover Financial
Services (DFS)
AIM XXXIV
(GILD)
 LabCorp (LH)
 Teradata Corp.
(TDC)
 United Health Group
(UNH)
86
PORTFOLIO PURCHASES
Company
Ticker
Price as of
4/20/12
Intrinsic
Value
Upside
Activision Blizzard
ATVI
$12.20
$14.23
17%
AeroVironment Inc.
AVAV
$24.74
$36.25
47%
CarMax Inc.
KMX
$31.49
$37.54
19%
Flowserve Corp.
FLS
$111.52
$125.93
13%
PNC Financial
Services
PNC
$65.38
$81.37
24%
Williams-Sonoma
WSM
$38.39
$46.10
20%
AIM XXXIV
87
PORTFOLIO SELLS
Ticker
Price as of
4/20/12
Intrinsic
Value
Upside/(Downside)
AMZN
$189.98
$190.56
0%
EcoLab Inc.
ECL
$62.22
$62.65
0.1%
Newmont Mining
NEM
$47.25
$58.21
23%
RBC Bearings
ROLL
$44.48
$43.97
(1%)
Sonic Corp.
SONC
$7.00
$7.40
6%
HOT
$57.61
$49.17
(15%)
Company
Amazon
Starwood Hotels
AIM XXXIV
88
V. GENERAL INFORMATION
AIM XXXIV
89
GENERAL INFORMATION
 Chicago Trip
 In Class Speakers
 Newsletter
 AIM Website
AIM XXXIV
AIM XXXIV in Chicago
90
CHICAGO TRIP: MARCH 29TH & 30TH
 Dinner with 28 AIM Alumni
 Checked in on other ND Investments
-
Palmer House Hilton
Santa Fe Building
 Visited four firms
-
AIM XXXIV
RoundTable Healthcare Partners
R.W. Baird—Equity Research Group
Grosvenor Capital Management
Alvarez & Marsal
91
 David J. Koo, ND BBA ‗93
 Senior Partner
 David E. Tarantino, ND BS ‗93
 Associate Director of Research
AIM XXXIV
92
 Greg Salter, ND BBA ‗10
 Associate
 Eric Lorge, ND BBA ‗96
 Managing Director
AIM XXXIV
93
GUEST SPEAKERS
 Edward R. Trubac
-
Professor, Mendoza College of Business
 John Loesch (ND MBA ‘07, AIM Alum.) &
Tyler Ventura (ND MBA ‘07, AIM Alum.)
-
Research Analysts, Diamond Hill Capital Management
 Frank Timons (ND BA ‗91, JD ‗94)
-
Portfolio Manager, Lord Abbett & Co
 Gary Dagres (ND MBA ‗11, AIM Alum.)
-
AIM XXXIV
Associate, GE Aviation Business Development
94
NEWSLETTER
Objective:
- Alumni News
- Portfolio Performance
- Economic Outlook
AIM XXXIV
95
AIM WEBSITE





News and Events
Analysts
Portfolio Performance
Publications
Alumni
-

Career Opportunities
Upcoming Events
Social Networking
-
Facebook
Linkedin
Irish Online (MyNotreDame)
-
AIM.ND.EDU
AIM.ND.EDU
AIM XXXIV
96
THANK YOU
We would like to extend a special thank you to:

The Advisory Board for their input and support

Scott Malpass and the Notre Dame Investment Office for the opportunity to
participate in such a unique and valuable course

Professors McDonald, Langley, and Reilly for their guidance and knowledge

Rachel Karnafel for administrative support
Post – Presentation Agenda

Food & refreshments

Advisory Board panel discussion
AIM XXXIV
97
AIM XXXIV
AIM XXXIV
98
FINAL PORTFOLIO AS OF 4/18/12
Company
Ticker
# Shares
Activision Blizzard
ATVI
21,000
$12.31
$258,510
3.9%
AeroVironment
AVAV
10,600
$24.85
$263,410
4.0%
Alliant Tech Systems
ATK
4,600
$51.94
$238,924
3.6%
Apple
AAPL
400
$585.15
$234,060
3.5%
CarMax Inc
KMX
7,900
$31.48
$248,692
3.8%
Caterpillar
CAT
2,500
$108.11
$270,275
4.1%
Chevron
CVX
2,250
$102.55
$230,738
3.5%
Coca Cola
KO
3,100
$74.17
$229,927
3.5%
Continental Resources
CLR
3,200
$85.62
$273,984
4.1%
Cummins
CMI
2,400
$116.12
$278,688
4.2%
Dick's Sporting Goods
DKS
4,900
$50.60
$247,940
3.8%
Discover Financial Services
DFS
8,600
$33.08
$284,488
4.3%
DLTR
2,500
$99.31
$248,275
3.8%
Dollar Tree
Price
Total Value % of Portfolio
AIM XXXIV
99
FINAL PORTFOLIO (CONT’D)
Company
Ticker
# Shares
Price
Total Value
% of Portfolio
EBAY
6,800
$40.65
$276,420
4.2%
Flowserve Corp
FLS
2,300
$111.87
$257,301
3.9%
Gilead Sciences
GILD
5,500
$51.78
$284,790
4.3%
Google
GOOG
340
$605.97
$206,030
3.1%
Halliburton
HAL
7,500
$33.73
$252,975
3.8%
KeyCorp
KEY
28,000
$7.81
$218,680
3.3%
Lab Corp
LH
2,500
$88.43
$221,075
3.3%
PNC Financial Services
PNC
4,300
$64.87
$278,941
4.2%
Potash
POT
5,000
$43.99
$219,950
3.3%
QCOM
4,100
$62.91
$257,931
3.9%
Teradata Corp
TDC
4,000
$69.44
$277,760
4.2%
United Health Group
UNH
4,800
$59.42
$285,216
4.3%
Williams-Sonoma
WSM
6,900
$38.38
$264,822
4.0%
eBay
QualComm
AIM XXXIV
100

advisory board presentation - AIM

Transcription

Similar documents