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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
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Meeting Agenda • Announcements • Market Overview + Lecture: Clean Energy • Portfolio Update • Pitch: AGX • Important Dates
Announcements Fall Portfolio Challenge • Build and manage your own virtual portfolio • Compete with other McCombs students • Top three winners receive prizes in January $5 entry fee • Register at usiteam.org/events
Announcements www.usiteam.org/events 2013 SP TX Saturday October 19 The Texas Stock Pitch Competition • Pitch a stock to a panel of industry professionals • Network with investors across the country • Win $2500 in cash prizes
Announcements Workshops Every Thursday 7-8PM SAC2.120 • Topic this week: • Comps Analysis
Announcements Free Wall Street Journal digital access for paid members Contact treasurer@usiteam.org to receive login information
Market Overview: Clean Energy Solar Energy Smart Tech Wind S&P500
Market Overview: Clean Energy What’s driving the clean energy rally? Desire to cut fossil fuel consumption Japanese Energy Demand 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
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?
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?
September 24, 2013 University Securities Investment Team Argan, Inc. (NYSE: AGX) Manideep Ravi Danial Bhatti Kristi Sparrow Carl Koehler
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
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 M Current Stock Price = 21.34 Beta = 1.04 Current Ratio = 2.77 52 wk Hi/Low = 13.90-21.90
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
Industry 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
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 Bosselmann CFO – Arthur Trudel
Important Dates • Thursday, Sept. 26, 7-8PM- SCG Workshop #2 • SAC 2.120 • Saturday, October 12: Last day to register for TXSP • www.usiteam.org/events • Saturday, October 19: Texas Stock Pitch Competition
Announcements www.usiteam.org/events 2013 SP TX Saturday October 19 The Texas Stock Pitch Competition
Lecture: Multiples Analysis • Objectives • What 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 the inputs associated with the product Literally the cost of the goods you sell Cost of input per unit x units sold -Cost of Goods Sold The final residual profit after all expenses and taxes have been taken out Also known as net income, net profit Costs not associated with producing the good Ex.) salaries paid to accountants or executives Gross Profit Price per unit x units sold -Operating Expenses Operating Profit -Taxes Earnings
Stock Price AAPL LNKD $467.41 per share $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 each 10 million shares @ $10 each 100 million shares @ $1 each 1 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 Example Your 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 Example You look around and find a vendor who has a similar looking, but slightly larger fruit. In order to standardize the price and eliminate the factor of size, we can calculate the price per pound You look around and find a vendor who has a similar looking, but larger fruit, selling for $10 each. $10 each $5 each
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 Investors tend to want to pay less for a dollar of earnings like paying less per pound of fruit Tells you how much you pay per dollar of earnings = = Earnings per share Total earnings / total shares
Price to Earnings Example AAPL LNKD $476.41 $243.90 $40.82 $.37 =676.6x =11.7x
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 How much you pay per dollar of earnings Earnings per share Price per share How much you pay per dollar of resources of the business Book value per share Price per share Like P/E, but using cash flow (different from earnings) Cash Flow per share Enterprise Value Like P/E, but using better measurements of price and a proxy for cash flow/earnings. Most popular multiple EBITDA
