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McIntire Investment Institute At the University of Virginia. (NYSE : ADT - Long). Prepared by K. Wey and J. Wulkan , Memo by H. Freund| Jan. 23, 2013. 1. McIntire Investment Institute. Investment Thesis. Market Leader: 28% Market Share, D urable Brand, Premium P ricing.
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McIntire Investment Institute At the University of Virginia (NYSE : ADT - Long) Prepared by K. Wey and J. Wulkan, Memo by H. Freund| Jan. 23, 2013 1 McIntire Investment Institute
Investment Thesis Market Leader: 28% Market Share, Durable Brand, Premium Pricing ADT Pulse Integrated Security: Higher ARPU, Lower Churn, Undervalued Substantial Tailwinds: Insurance Discounts, Pre-wiring, False-alarm Reduction Multiple Opportunities to Win: Share Repurchases, Acquisition Target 2 McIntire Investment Institute
Financial Overview Entry point Price: $47.98 AvgVol (3m): 1.90MOperating Margin: 23.14% Market Cap: $11.15B P/E (ttm): 28.74 EV/EBITDA: 10.10 Range: $34.68-48.91 Current Ratio: 0.77 Debt/Equity: 0.80 3 McIntire Investment Institute
ADT is a Market Leader – 28% Share Market Share Breakdown shows ADT dominates 4 McIntire Investment Institute
ADT able to Consolidate the market Price raises are “great…[ADT raises] rates and a few people leave for the lower cost providers, as those smaller players grow larger, ADT buys them; everything in this industry leads to ADT" ADT can “get parts for $200. The same parts cost me $750-$1200. Hard to compete….totally depressing small guys” ADT’s brand and legacy are significant competitive advantages, creating “a phenomenal need, without ADT people wouldn’t buy home security” Brand image is reinforced by “advertising…helped make ADT a household name” (VAR) and expands the “addressable market significantly…[as customers] see it in the mainstream” GROWTH AT EXPENSE OF MOM & POP DEALERS 5 McIntire Investment Institute
Integrated Security – ADT has finger on the Pulse 6 McIntire Investment Institute
Integrated Security growing at 23% CAGR Benefits: 1) Lower attrition rate 2) Higher ARPU 3) ADT leader 7 McIntire Investment Institute
Pulse adoption rates set to Increase VAR: Increase in # of Customers opting for Pulse (vs. Street – Constant) STREET UNDERESTIMATES PULSE ADOPTION BY 40% 8 McIntire Investment Institute
Tailwinds to Home Security Adoption 9 McIntire Investment Institute
Favorable Valuation with Multiple Ways to Win 10 McIntire Investment Institute
Cable or telco buyout yields even Higher Upside 11 McIntire Investment Institute
Buyback provides 3rd way to win 12 McIntire Investment Institute
L-ADT = Substantial Returns for MII ADT continues to serve as home security market leader Share repurchases or ADT acquisition yield highest upside potential Higher Pulse penetration forms solid base-case Home security tailwinds push ADT to profitability Four Ways to Win with ADT Pulse propels ADT to higher price, MII to higher profits Price Target: $61 Upside: 27% 13 McIntire Investment Institute