Student Managed Investment Fund

Consumer Discretionary | Fall 2015

Table of Contents

Economy

Sector

Industry

Company Snapshot

Media Networks

Disney-Branded

Financial Analysis

Valuation

Economic OutlookUnited States• Unemployment at 5-year low 5.0%• Disposable Income 3.34% Annualized

Growth Rate (based on 0.83% CQGR over 18 Quarters)

• Wage growth around 1.0% Q/Q in 2015• Inflation (Core PCE Price Index)

1.3 Y/Y Oct – Flat M/M• Real PCE growth stronger than 2014• Expansionary Consumer Future

Expectations• Low Gasoline prices

11 Q111 Q3

12 Q112 Q3

13 Q113 Q3

14 Q114 Q

315 Q1

15 Q3

1050011000115001200012500130001350014000

-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%

U.S Wage Growth vs Disposable Income

Disposable IncomeWages Q/Q Growth (%)Moving average (Wages Q/Q Growth (%))

% C

hang

e Q

/Q

Billi

on U

SD

Unleaded Gasoline Futures – March ’16 - $1.33Source: CME Group

Economic OutlookChina• Slowing GDP Growth 6.8% (IMF)• Strong Wage Growth• Inflation lower in 2015 at 1.5% Y/Y• Consumer Confidence at Dec ‘14 level• Strong Retail Spending 11.0% Y/Y (Oct)• Middle class spending in Asia-Pacific region

42% of Global Total (OECD Development Center)

• Slowing industrial production “only” 5.6% Y/Y growth in October 2015

Sector Outlook

11/28/2014

12/09/2014

12/20/2014

12/31/2014

01/11/2015

01/22/2015

02/02/2015

02/13/2015

02/24/2015

03/07/2015

03/18/2015

03/29/2015

04/09/2015

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05/23/2015

06/03/2015

06/14/2015

06/25/2015

07/06/2015

07/17/2015

07/28/2015

08/08/2015

08/19/2015

08/30/2015

09/10/2015

09/21/2015

10/02/2015

10/13/2015

10/24/2015

11/04/2015

11/15/2015

11/26/201580

85

90

95

100

105

110

115

120

S&P 500 vs. S&P 500 Consumer Discretionary Sector

S&P 500 Consumer Discretionary (Sector) (TR) S&P 500 (TR)

Nor

mal

ized

Inde

x Va

lue;

Nor

mal

ized

as o

f Nov

. 28,

201

4

Consumer Discretionary Drivers:

Disposable Income Consumer Expectations Consumer Spending

“Cord Cutting” due to price

hikes

Need for customization of

packages

Comfort/Ease of Access

Online Video

Media Industry Overview

Global

2011 2012 2013 20140

100020003000400050006000700080009000

10000

U.S Home Entertainment Spend-ing

Rental Sell Through Digital

Mill

ion

USD

2011 2012 2013 20140

1000

2000

3000

4000

5000

U.S Home Entertainment Spending - Digital

Electronic Sell Through VOD Streaming

Mill

ion

USD

Media Industry Overview

Market DataPrevious Close 111.89

52-week High 112.08

52-week Low 90

Market Cap 1845B

Outstanding Shares 1.65B

Free Float 1.57B

EPS FY 4.9P/E Ratio 22.83

Diversified worldwide entertainment company with operations in five business segments

Company Overview

31%

14%9%

2%

44%

Revenue Distribution

Parks and ResortsStudio Enter-tainmentConsumer ProductsInteractiveMedia Networks

ESPN, multinational leader in sports, has locked most long-term rights for the next decade

Disney’s unique ecosystem of running created or acquired intellectual property through its lines of business

Catalysts: Star Wars (Dec 18) & Shanghai Disney (Spring 2016)

31%

14%9%

2%

44%

Parks and Resorts Studio Entertainment Consumer Products Interactive Media Networks

Company Overview: Revenue Distribution

Media Networks

The acquisition of long-term sports rights ensures that no significant shift from current preeminent position in rights

ESPN reaches 50% larger audience than all other national sports networks combined

ESPN leads the market in the digital field

E S P N N F L n e t w o r k

F o x S p o r t s 1

G o l d C h a n n e l

N B C S p o r t s

M L B N e t w o r k

N B A T v F o x S p o r t s 2

975

163

123

110

96 68 55

23

A v er ag e min u t e h o u seh o ld au d ien c es (000)

Non-ESPN638

975+53%

T V O n l y T V + 1 T V + 2

5:038:08 8:52

3:43

8:20

Time S p en t wit h ES P N Med ia P er A d u lt User in t h e Av er ag e Mo n t h

TV Digital or Radio

• 6 main locations (theme parks & resorts)

• 148,341,000 visitors in 2014

• Economic Outlook Stronger PCE• MyMagic+ technological Innovation• Projected 7.0% average annual sales growth during

the next five years for parks and resorts.

• 4 Cruise Ships: Fantasy, Dream, Magic & Wonder

• ROIC's in the mid to high-teens for the new cruise ship

operations

• Constant renewal of shows, stands and visuals with Disney’s successful brands. ie: Star Wars

Parks & Cruise LineParks & Resorts Cruises

2010 2011 2012 2013 20140

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

Historical 5 Year Revenue - Parks and Resorts

Revenues % Change OI OI/Rev

5 year economic

plan: consumer

led

Lower yuan stimulates

tourism

China lifts 1-Child Policy

Largest growing middle Class

GROWTH OPPORTUNITY

• Joint venture with Shanghai Shendi partners

• Features six themed lands, two hotels, a park, and a

shopping & entertainment district

• Location: Next to country's 3rd largest airport

330 million people live within a three-hour drive

China's fastest growing city in population,

income, investment, and tourism

• Government offered land for additional expansion

Parks & Cruise LineShanghai Disney Resort

Studio Entertainment PipelineMovie Consumer

Products Books/Comics Educational Materials Clothing Video Games Attractions

Film Release ScheduleName Producer Release DateThe Good Dinosaur Pixar 11/25/2015Star Wars: The Force Awakens Lucasfilm 12/18/2015The Finest Hours Walt Disney Pictures 01/29/2016Zootopia Walt Disney Animated Studios 03/04/2016The Jungle Book Walt Disney Pictures 04/15/2016Captain America: Civil War Marvel 05/06/2016Alice: Through the Looking Glass Walt Disney Pictures 05/27/2016Finding Dory Pixar 06/17/2016The BFG Walt Disney Pictures 07/01/2016Pete's Dragon Walt Disney Pictures 08/12/2016Doctor Strange Marvel 11/04/2016Moana Walt Disney Animated Studios 11/23/2016Star Wars Anthology: Rogue One Lucasfilm 12/16/2016Beauty and the Beast Walt Disney Pictures 03/17/2017Ghost in the Shell DreamWorks 06/14/2017Guardians of the Galaxy Marvel 05/05/2017Star Wars: Episode VIII Lucasfilm 05/26/2017Pirates of the Caribbean: Dead Men Tell No TalesWalt Disney Pictures 07/17/2017

Global Box Office $1.1 Billion -

highest-grossing animated film of

all time

2016 -Frozen flume ride (Epcot)

Impact on 3Q2014: Consumer Products revenue jumped 22%

Disney is launching a short film

called "Frozen Fever"

“Frozen Free Fall” Surpasses 100

Million Downloads

• Revenue– 5 Year Sales CAGR = 6.63%– “Recession Resistant”

• Improving Margins• Major revenue from United

States– Limited impact of strong USD

• Stock Repurchase Program– Undervalued stock

Financial Analysis

74%

13%

9% 4%

Regions

United States and Canada EuropeAsia Pacific Latin America and Other

'11 '12 '13 '14 '15 $ -

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Basic EPS

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Total Revenues

Revenues Y/Y growth Net Income Margin

Financial Analysis

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0

2,000.0 4,000.0 6,000.0 8,000.0

10,000.0 12,000.0 14,000.0 16,000.0 18,000.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Parks/Resort

Revenues Y/Y growth

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Media Segments

Revenues Y/Y growth

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0

500.0 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 4,000.0 4,500.0 5,000.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Consumer Products

Revenues Y/Y growth

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

-20.0%-15.0%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%25.0%

Studio Entertainment

Revenues Y/Y growth

Financial Analysis

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

60.0x

Observations:• Improved ROA & ROE compared to

Pre-recession levels• Since 2011

• 2.7% improvement in ROA• 5.0% improvement in ROE

• Capacity to take on more Debt• EBIT/Interest Exp. ‘15 = 50.1x• Debt/Equity ‘15 = 35.6%• Current Ratio ’15 = 1.2x

17%

9%2%

29%

35%

8%

Assets

Studio Entertainment Consumer ProductsInteractive Parks and ResortsMedia Networks Corporate

Disney vs. Comps

 Walt Disney Company (NYSE:DIS)

Narrow Comps (Mean)

Wide Comps (Mean)

Gross Margin % 25.2% 44.1% 47.4%

Net Income Margin % 15.98% 18.88% 5.51%

LTM Revenue Growth 7.48% (5.50%) 1.77%

Total Debt/Capital % 26.27% 59.49% 60.43%

Trailing P/E 24.40x 11.60x 19.60x

Forward P/E 21.10x 12.79x 18.50x

Business Lines in comparisonSegment Disney CBS News Corp. Time Warner Viacom

Films × × × ×Theme Parks × ×Cable Networks × × × ×Broadcast Networks × × × ×TV Stations × × ×Radio × ×Internet × × × ×Consumer Products × × × ×

Valuation

AverageComps EV/EBITDA

Comps P/BComps P/E

DCF EBITDA Exit MultipleDCF Perpetuity Method

80.00 90.00 100.00 110.00 120.00 130.00 140.00 150.00 160.00

Football Field Analysis

Target Price (USD)

Sensitivity Analysis - Exit Multiple                    $ 128.19 8.1% 8.6% 9.1% 9.6% 10.1%

15.00x $ 141.49 $ 138.97 $ 136.50 $ 134.09 $ 131.73

14.50x $ 137.18 $ 134.74 $ 132.35 $ 130.01 $ 127.72

14.00x $ 132.87 $ 130.51 $ 128.19 $ 125.93 $ 123.72

13.50x $ 128.57 $ 126.28 $ 124.04 $ 121.86 $ 119.72

13.00x $ 124.26 $ 122.05 $ 119.89 $ 117.78 $ 115.72

Sensitivity Analysis - Perpetual Growth                  $ 139.41 8.9% 9.0% 9.1% 9.2% 9.3%

6.0% $ 140.16 $ 135.40 $ 130.94 $ 126.76 $ 122.84

6.1% $ 144.88 $ 139.78 $ 135.03 $ 130.59 $ 126.42

6.2% $ 149.94 $ 144.48 $ 139.41 $ 134.67 $ 130.23

6.3% $ 155.39 $ 149.53 $ 144.09 $ 139.03 $ 134.30

6.4% $ 161.28 $ 154.97 $ 149.13 $ 143.70 $ 138.65

Summary  

Target Price $ 130.78

Current Price $ 112.25

Upside 16.51%

Buy!

Reasons for undervaluation:

1. Underestimation of Chinese Market2. Star Wars potential in Disney’s

ecosystem isn’t priced in3. ESPN market overreaction

Consumer Discretionary speakers:Sebastian Dill | Sector ManagerJose Laphitzondo | Associate Manager

Questions?

ESPN’s block off from negative aspects of consolidation of cable industry

Defense!

ESPN exclusive long term control of sports rights for decades Supplier Power

A-La-Carte system benefit would be offset by higher cost per channel. ie: Apple TV suspended because media companies that want more money for their programming.

Sports value relies on it being LIVE

Dual revenue stream, strong position in advertiser’s eyes.

• China (Parks & Movies)• SVOD affiliations

(Netflix, Hulu, Maker)• Huge Film pipeline &

end product variety• Tech Start-Up

“Accelerator” Program with Techstars – 2nd year

• “Cord Cutting” at Cable Networks (ESPN, ABC)

• Cost increases at Sport Networks• Regulation (Media Segment)• Intellectual Property Infringement

• Heavy Capital Expenditure requirements

• Media segment as major source of revenue• ESPN• ABC

• Competent Management• Diversified Revenue streams• Strong revenue & FCF growth• Brand status• Technologically Innovative

• MyMagic+• 3D printed toys

Strength Weaknesses

OpportunitiesThreats

SWOT Analysis

Economic Outlook - USHigh correlation between PCE and GDP 68.5% of GDP (as of 2013, IMF)

Real PCE slower increase than expected

Savings rate increase in Q3 2015 5.0% (Q2) vs. 5.2% (Q3)

PCE Drivers:

1. Unemployment2. Wages3. Price Level4. Consumer Confidence5. Strong USD 6. Gasoline Prices

Source: Bloomberg

12/2014

1/2015

2/2015

3/2015

4/2015

5/2015

6/2015

7/2015

8/2015

9/2015

10/20150.0

20.0

40.0

60.0

80.0

100.0

120.0

4.7

4.8

4.9

5.0

5.1

5.2

Consumer Future Expectations

Conference Board ExpectationsConference Board Inflation Expectations

Econ

omic

Expe

ctati

ons

Infla

tion

Expe

ctati

ons

Economic Outlook - China

Global

Diversified across various platforms

1. Hulu (33%) owned• Rumors about possible inclusion of

Time Warner• Underestimated• New Ad-free service

2. Netflix• Exclusive Movie Pay Windows 1 & 2

for movies 2016 – 2018• Pressured to include

advertisements/Commercials3. Maker Studios (acquired 2014)

• Leader in Short-Form Video (650 subscribers)

Digital

GROWTH OPPORTUNITY:Technological Innovation

Disney Accelerator

MyMagic+• Tech Start-Up Accelerator Program

(2014 – present)• In partnership with TechStars

• Firms in Consumer Entertainment/Media

• Funding• $20,000 up-front• $100,000 convertible debt note

• 3-Months Mentor program• Top Disney Executives• Investors• Entrepreneurs• Legal Experts• Venture Capitalists• Etc.

• $1 Billion project functional in 2015• Bracelet acts as:

• Door Key• Wallet• FastPass

• Provides better guest experience• Allows Disney to better study visitors