General Body Meeting 02-22-12 1. Mutual Investment Club of Cornell Welcome 2

General Body Meeting 02-22-12

1

Mutual Investment Club of Cornell

2

Welcome

AIESEC Cornell Spring 2010

AIESEC CornellSpring Recruitment 2012

What is AIESEC?

• World’s largest student-run organization

• International, non-political, non-profit, independent

AIESEC Global Partners

http://aiesec.org/cms/aiesec/AI/partners/Alcatel-Lucent/index.html

http://aiesec.org/cms/aiesec/AI/partners/ABInBev/index.html

http://aiesec.org/cms/aiesec/AI/partners/Microsoft/index.html

http://aiesec.org/cms/aiesec/AI/partners/PwC/index.html

http://aiesec.org/cms/aiesec/AI/partners/DeutschePostDHL/index.html

http://aiesec.org/cms/aiesec/AI/partners/Artemisia/index.html

http://aiesec.org/cms/aiesec/AI/partners/Cadbury/index.html

http://aiesec.org/cms/aiesec/AI/partners/TCS/index.html

http://aiesec.org/cms/aiesec/AI/partners/Bridgestone/index.html

http://aiesec.org/cms/aiesec/AI/partners/Electrolux/index.html

http://aiesec.org/cms/aiesec/AI/partners/Husqvarna/index.html

http://aiesec.org/cms/aiesec/AI/partners/IEBusinessSchool/index.html

http://aiesec.org/cms/aiesec/AI/partners/IngersollRand/index.html

http://aiesec.org/cms/aiesec/AI/partners/UBS/index.html

AIESEC Cornell Spring 2010

Exchange Programme

Exchange

Global Internship Program

Global Community

Development Program

General Internships

Global Exchange Partners

Tata Consultancy Services Educational

InternshipsDevelopmentalInternships

Global Internship Programme

• Corporate internships• Work nature

– Management– Technical– Education (corporate)

• Location: developed countries

• Duration: Long-term (6-12 months)

• Compensation: Paid

Sample Internship – Finance

• Company: Deutsche Post DHL• Location: Germany• Field: Finance and HR

Job Description:- Coordinating projects, quality assurance and

decision-making processes- Independent development and implementation of

reports for the processes- Cost-benefit-analysis for process proposals

Requirements: English, Experience with cost accounting, financial accounting and financial planning and budgeting

Sample Internship – Global Exchange Partner• Company: UBS • Location: Switzerland• Field: Finance

Job Description:- Analyzing and mapping of the current processes

to develop new strategies to increase efficiency- Utilizing various tools such as Excel and Access to

develop applications to support new strategies- Attending training programs in credit risk control

Requirements: English, Background in statistics, banking and introductory finance

Sample Internship – Partnership• Company: Tata Consultancy Services• Location: India• Field: Management/Technical

Job Description:– Job descriptions can be modified to suit interns’ abilities– 100% acceptance rate in Spring 2011

Requirements: Graduating seniors, non-Indian descent

Interested? Information sessions:• January 31st: Rockefeller 128, 6:30PM• February 1st: Rockefeller 132, 6:30PM

Application Process• Submit application on:

http://www.aieseconline.net

• Application deadline: Sunday, February 26th, 23:59PM

• Formal interviews: February 28-March 1

• Notification of acceptance: March 4th

Questions? Email [email protected]

http://www.aieseconline.net/

mailto:[email protected]


DCF Modeling Workshop

March 3rd and 4th

11:30 am – 6:00 pm Martha van Rensselaer G71

Lunch Fee of $15 Applications released on website

tomorrow Deadline is February 28th, 11:59 pm 130 spots open


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News Updates


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Energy Sector


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Oil Prices

Iran cuts off oil exports to France and Britain Threatens premature cut to others in EU


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Macro Sector


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Greece: Last Week

Tuesday Feb 14: Bailout plan delayed Warned Athens that needed to respect

bailout terms Did not receive the required political

assurances from the leaders of the Greek coalition parties

$525 million for a fiscal gap: prerequisite for the bailout was missing


Approved Bailout Package

Brussels, Tuesday February 21st: agree on a second bailout

Offer Greece €130 billion ($171.9 billion) Greece agrees: reduce debt to 120.5% of GDP

by 2020 Debt currently at 160% of GDP

Estimate: 129% of GDP in 2020 $66bn more from 2015-2020 to reach goal If no bailout: 178% of GDP in 2015

Deal includes: 53.5% write down for investors in Greek bonds, from already having a 50% loss Overall loss of 75%


Bailout Plan

Distribute profits (estimated €45 bn to €50 bn) from holdings of bonds

Plan designed to write off ~ €100 billion of Greek debt by mid march deadline Exchange before March 20 to escape the full

14.5 billion-euro cost of the bond redemption Further reduction in interest rates on the

€53 billion in loans from the euro-zone


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Greece: Big Spending Cuts

Reducing pharmaceutical expenditures by $1.3 billion in 2012

Cut overtime pay for hospital doctors by $66 million

Save $396 million in military procurement

Save $40 million by reducing the number of deputy mayors and staff

Many protests, especially from public sector employees


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Uncertainties

Long term questions ability to pay off debt

Greek economy: more competitive through wage cuts Falling wages will deepen Greece's

recession Tension: bailout plan of reducing debt

and improving competitiveness The internal devaluation to restore

Greece's competitiveness will lead to a higher debt-to-GDP ratio, in the short term

Elections in April


23

What’s Next?

Results of second aid program will come in months

European Stability Mechanism: €500 billion to address firewall issue

Injection of liquidity into the banking sector by the ECB Determination to save currency Prevent chain reactions To mark the beginning of the end and give

euro zone momentum it needs!


Extension of Payroll Tax Cuts

MICC General Body Meeting 2/22/2012


Payroll Tax: Background

Resolved payroll tax stalemate in December $143 billion economic package passed,

includes: Extension of payroll tax holiday Tax benefits for unemployed Reimburse doctor’s Medicare compensation Support “work sharing” program

Extends lowered payroll tax of 4.2% from original 6.2% for 160 million workers.


Specifics

Passed in House 293-132, Senate 60-36 with bipartisan support

Republicans originally antagonized package due to cost/spending Dropped resistance to avoid public

backlash during election year

No spending cuts to pay for cost


Specifics

Goal of payroll tax cut: Help recovery by giving consumers more

money Not just help jobless– help stay in jobs

Concessions by Democrats: Cuts to other Federal programs, ie.

preventative healthcare, to pay cost Limit on unemployment benefit Drug test program for unemployment benefit

candidates


Discussion

Prevents 0.4% reduction in GDP, half million jobs, and 0.3% increase in unemployment.

Improvement in GDP improves chances of Obama’s reelection.

Rising stock prices


Criticism

What about social security? Payroll tax = money taken from paycheck

to pay for social security Iconic program for Democrats

No spending cuts to offset cost of package Added to deficit of over $1 trillion

Re-progamming payroll systems with 2 month lead time


30

Two Minute Drill

Guest Lecturer:

Topic:

Siddhant Trivedi

Venture Capital


MCD

QuanTeam


“MCD is a business you can own forever. As long as people need to eat, McDonald's offers good

quality food and service, and the company keeps growing every

year.“

-Bill Ackerman


MCD: Overview


MCD at a Glance

MCD has risen from a share price of $12.8 in March 2003 to now $100. Annualized return of 25.7% over last nine years with a 35% return in 2011.


Trading Multiples and Key Statistics Stock Price: $100.67 52-week range: $72.89-$102.22 Beta: 0.31 Market cap: $102.99 billion Dividend: $2.80 Dividend Yield: 2.80% Operating margin: 30.71%


Pays a Great Dividend

• Current Div Payout is 2.53%, back to where it was before 2008

• Payout is constantly increasing


Trading Multiples and Key Statistics 2011 Global Sales Growth: 6.7%

Analyst expectations: 5.7& US Sales growth: 7.8% Asia Sales growth: 7.3%

P/E (ttm): 19.10 P/E (fwd): 15.93 P/BV (ttm): 7.71 Lower Multiples than those for competitive

companies Yum and Wendy’s even given its impressive performance: Yum P/E of 23x and P/BV of 15x Wendy’s fwd P/E 21.6x


Business Model

Earns revenue as a franchiser and operator of restaurants

15% owned and operated directly – “models” Remainder through JV / franchise agreements

Q4 (Dec '11) 2011

Net profit margin 20.18% 20.38%

Operating margin 31.07% 31.58%EBITD margin 36.55% 30.93%


Industry Overview

• Competitors– WEN, YUM, JACK– YUM includes KFC, Pizza Hut, LJS, and

A&W– Burger King Holdings (Private)– Internationally, MCD competes with YUM

4Q11 MCD WEN YUM

Net profit margin 20.18% 0.42% 8.68%

Operating margin 31.07% 5.30% 12.33%

ROA 16.6% 0.49% 16.47%


MCD: Growth Expectations


Performance

2011 Performance: 35% increaseVolatility: 60% less than market


Growth in Asia

YUM: 14% EPS growth in 2011 19% sales growth in China 50% of revenue from Asia Operating margin: 15.81%

MCD: 7.3% sales growth in Asia 22% of revenue from Asia Operating margin: 30.71%

Reasons for growth: Huge capital expenditures in China (opened record 200

restaurants in 2011) Margins down 80 bps due to stores opening, will rise in future $2.9 billion in CapEx in 2012: 1300 new restaurants, 250 in

China


Growth in Asia


Reinvestment and Menu Growth

Menu expansions: Premium coffee drinks Breakfast items Salads Value menu

Reinvestment: 2012: $2.9 billion in CapEx 1,150 new stores 2,500 reimaged stores (45% of interiors and 25% exteriors)

Returning money to shareholders: 2011: $6 billion returned to shareholders


Benjamin Graham Analysis

8 Hurdles: Hurdle #1: Earnings/Price > 2×(10 Year Treasury Yield) Hurdle #2: Current P/E Ratio < [½ × (5-Year P/E Ratio)] Hurdle #3: Dividend Yield > [1/2 ×(10 Year-Treasury Yield)] Hurdle #4: Stock Price < [1.5 × Book Value/Share] Hurdle #5: Total Debt < Book Value Hurdle #6: Current Ratio > 2.00 Hurdle #7: Earnings Growth > 7% over past 5 years Hurdle #8: Stability in Growth of Earnings



Hurdle #1 Earnings/Price > 2×(10 Year Treasury Yield)

McDonald’s Earnings/Price EPS: $5.27 Price: $100.61 Earnings/Price: 5.24%

10 Year Treasury Yield (×2) 4.02%

Hurdle: Passed



Hurdle #2 Current P/E Ratio < [½ × (5-Year P/E Ratio)]

Forward Price/Earnings: 15.8% Highest 5-Year Price/Earning: 32.2%

Hurdle: Passed



Hurdle #3 Dividend Yield > [1/2 ×(10 Year-Treasury Yield)]

McDonald’s Dividend Yield: 2.8% 10-Year Treasury Yield: 2.01%

Hurdle: Passed



Hurdle #4 Stock Price < [1.5 × Book Value/Share]

McDonald’s Book Value/Share: $13.04 Stock Price: $100.61

Reason: Much of McDonald’s Operations are owned by Franchisees, thus not showing up on Balance Sheet

Hurdle: Failed



Hurdle #5 Total Debt < Book Value

McDonald’s Total Debt: $12.54 billion McDonald’s Book Value: $13.3 billion

Hurdle: Passed



Hurdle #6 Current Ratio > 2.00

McDonald’s Current Ratio: 0.9 Current Ratio: Current Assets/Current Liabilities

Most analysts agree that a current ratio of 1.0 is the normal amount for stocks

Hurdle: Failed



Hurdle #7 Earnings Growth > 7% over past 5 years

Earnings Growth: 9.1%

Hurdle: Passed



Hurdle #8 Stability in Growth of Earnings

December 2007: 1.07

December 2008: 0.86

December 2009: 1.11

December 2010: 1.16

December 2011: 1.33

Hurdle: Passed



8 Hurdles: Hurdle #1: Earnings/Price > 2×(10 Year Treasury

Yield) Hurdle #2: Current P/E Ratio < [½ × (5-Year P/E Ratio)] Hurdle #3: Dividend Yield > [1/2 ×(10 Year-Treasury

Yield)] Hurdle #4: Stock Price < [1.5 × Book Value/Share] Hurdle #5: Total Debt < Book Value Hurdle #6: Current Ratio > 2.00 Hurdle #7: Earnings Growth > 7% over past 5

years Hurdle #8: Stability in Growth of Earnings


Strong and Stable Growth

Strong Performance and Future Growth Six of Eight Hurdles Passed

EPS Growth Forecast 8.7% in 2012 10.3% in 2013 10.4% in 2014

Long term EPS growth: 9.8%

Lasting upward trend, stable during downturn


MCD: Valuation


DCF

Growth Stage Long term growth rate: 9.690% Growth Payout Ratio:49.90%

Number of Growth years: 9 Required Rate of Return:

8.722%

Risk Free: 2.064% Risk Premium:

5.658%

2012 2013 2014 2015 2016 2017 2018 2019 2020

EPS 5.727 6.328 7.01 7.689269 8.434359 9.251649 10.14813 11.13148743 12.2101286

Payout Ratio 0.49904 0.49904 0.49904 0.49904 0.49904 0.49904 0.49904 0.49904 0.49904

DPS 2.858002 3.157925 3.49827 3.837253 4.209083 4.616943 5.064324 5.555057489 6.09334256

PV 2.858002 2.904587 2.959501 2.985851 3.012435 3.039256 3.066316 3.093616872 3.12116071


DCF

Transition Stage Growth Rate at Maturity: 4.25% Payout at Maturity: 0.45

Number of transition years: 8

2021 2022 2023 2024 2025 2026 2027 2028

EPS 13.31022 14.78109 16.31395 17.89477 19.50702 21.13181 22.7481567 24.33336197

Payout Ratio 0.49291 0.48678 0.48678 0.48065 0.47452 0.46839 0.46226 0.45613

DPS 6.560738 7.195141 7.941304 8.601121 9.256472 9.897929 10.5155629 11.09917639

PV 3.090977 3.11792 3.165192 3.153159 3.12118 3.069731 2.9996531 2.912137169

Mature Stage Growth Rate at Maturity: 0.04246

EPS(1) 25.3668 TV 66.91 Stock Price: 118.5834743

Payout Ratio 0.45 D 2.995017

DPS 11.41506


Market Comps

McDonalds Yum! Brands Wendy’s

Past P/Earnings 19× 23.8× n/a

Future P/Earnings

15.8× 17.5× 21.6×


Market Comps

Price $65.90 $100.66

EPS (ttm) $2.74 $5.27

EPS (fwd) $3.75 $6.32

P/E (ttm) 24.05 19.1

P/E (fwd) 17.57 15.93

EV (in billions) $32.25 $112.96

EBITDA (ttm) 2.62 9.69

EV/EBITDA 12.29 11.66

YUM P/E (ttm) x MCD EPS (ttm) = MCD P

24.05 $5.27 $126.75

YUM P/E (fwd) x MCD EPS (fwd) = MCD P

17.57 $6.32 $111.02

YUM EV/EBITDA x MCD EBITDA = MCD EV

12.29 $9.69 119.06


Valuation Range

DCF : DR = 8.72%: $118. 59 DR = 7.72%: $155.62

Market comps: P/E (ttm): $126.75 (P) P/E (fwd): $111.02 (P) EV/EBITDA: 119.06 (EV)

Target price: $125


MCD: Technical Indicators


Technical Indicators

Williams %R (WLPR) Oscillator (between -100 to 0),

shows whether stock is trading high, low, or somewhere in between recent trading range

Measure of current price in relation to high and low of past n days %R = close(today) – high (n days) x 100

high(n days) – low (n days)

Indicators: %R = Five trading days since -100%

reached; %R < -90% strong buy %R < -80% buy %R > -20% sell %R= Five trading days since 0%

reached; %R > -10% strong sell



Bollinger Bands (BOLL) Shows two standard deviations below and above

moving stock price Lower bound = mean[close, n] – 2*stdev[close, n]

Upper bound = mean[close, n] + 2*stdev[close, n]

Indicators: Stock price < lower band buy Stock price > upper bound sell



Relative Strength Index (RSI) Momentum oscillator (between 0 and 100)

Momentum = rate of the rise or fall in price

Calculates as ratio of average higher closes to average lower closes Positive trading period: U = close(now) – close(previous) Negative trading period: D = close(previous) – close(now) RS = EMA(U,n)

EMA(D,n)

RSI = 100 – [100/ (1+ RS) ]

Indicators: RSI < 30 strong buy RSI < 40 buy RSI > 60 sell RSI > 70 strong sell



Moving Average Convergence/Divergence (MACD) Charts fast versus slow moving average to spot changes in

strength, direction, momentum, and duration of stock price 12 day exponential moving average (fast) 26 day exponential moving average (slow) MACD = 12 day EMA – 26 day EMA

Indicators MACD crosses over 0

(12 crosses over 26) strong buy MACD crosses below 0

(12 crosses below 26) strong sell


WLPR


BOLL


RSI


MACD


MCD

Conclusion: Strong Growth history and projections Low beta, low risk Not effected by crisis in Europe Strong dividend Undervalued versus competitors High growth potential in China and Asia Lowering margins

Overall analysis: strong buy Target price: $125 Duration: Long term


72

Announcements


73

Stock Competition

Investopedia Trading Simulator $100,000 in Virtual Money Full Trading Platform (Short Selling,

Options) Weekly Leaderboard Update

Game Name: MICC Stock Competition Password: Cornell


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Stock Competition


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Stock Competition

Mitch: 3.43%


76

Brainteaser

You wake up early one morning and find the light in your bedroom is broken!

You get dressed in the dark. Your sock drawer has socks of three different colors: red, white and blue. How many socks do you have to take out to be certain of having a matching pair?

Documents

General Body Meeting 02-22-12 1. Mutual Investment Club of Cornell Welcome 2