General Body Meeting 02.24.11. Mutual Investment Club of Cornell Agenda Announcements News Updates Energy Sector Pitch 2

General Body Meeting 02.24.11

Mutual Investment Club of Cornell

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Agenda

Announcements News Updates Energy Sector Pitch


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Wall St. Training

M&A and LBO Modeling on Excel Saturday, 3/6: 12pm-6pm

Sunday, 3/7: 12pm-8pm No Previous WST experience necessary

www.wallst-training.com/cornell

http://www.wallst-training.com/cornell


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African Stock Competition

MICC Team Marshall Verdi Shashwat Samudra Shashank Samala Andrew Freiman


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Wall St. Club Competition

Andrew Kugler [email protected]


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News Updates


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Global Unrest

Bahrain Libya

Gold above $1,400 Oil above $100

Nomura: Oil $220? Impact on global & US inflation outlook


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Other News

Home prices at 2002 lows Consumer confidence at highest levels

in three years BOE closer to tightening monetary

policy Treasuries head higher


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Silver (Ag)

Source: marketoracle.co.uk/Article26449.html


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SILV


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Causes?

Investment Inflationary concerns

Increase demand Mature electronic industry New uses

Conductive inks Nanotechnology Etc.


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HP Q1 2011 Earnings

Announced Tuesday, Feb 22 Expected EPS: 1.26-1.32 Reported EPS: 1.17 (up 26% YoY)

Share Price Performance After hours Feb 22: from 48.23 to 43.55

(-9.7%) Today (10:00am): 42.99

Key Concerns Weakness in personal computer,

technology service segments First full quarter with new CEO, Leo

Apotheker


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HP Q1 2011 Earnings

Netbook Decline HP has been a leader in netbook sales,

but these have been impacted by tablets (iPad)

HP not yet released their tablet (WebOS) However: tablet expected within weeks,

HP can claim a market share better than in netbooks

Rise in Price of Computer Components Concern that price increases will compress

margins for PC sales Will affect whole industry


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HP Q1 2011 Earnings

Effect of New CEO First full quarter with new CEO,

shareholders are not yet as familiar as they were with Hurd

Concern over Q1 results magnified by general uncertainty around new CEO

Fears may be calmed at ‘analyst day’, March 14

Long-Term Optimism Uptick in IT spending expected 23% blade server revenue growth, 30%

router and switching revenue growth (increasing market share)


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HP Q1 2011 Earnings

Unified Strategy WebOS as a maturing platform receiving

significant attention More likely than Android to match iOS

user experience, consumer-friendlyness WebOS on printers, computers, represents

a strong strategy (Apple has yet to leverage iOS on their own PCs)

Integration of Palm continues to proceed smoothly


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HP Q1 2011 Earnings

Analyst Day – March 14 Serve as a chance to increase familiarity

with new CEO, calm investor uncertainty “If HP can explain the miss, and rebound

trajectory, shares should rebound materially”

Product Announcement – March 14 “The big unveiling” – to show how

diversified product line will become a tremendous strength

Apotheker: HP has major head-start over Apple in terms of leveraging internet services


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HP Q1 2011 Earnings

My Take: HPQ is cheap, 11.63P/E, beaten up over

soft guidance on PC sales, magnified by general unease about CEO and company strategy

Disappointment over netbook sales will fade as tablet sales take over

Unease about CEO, strategy, likely to be directly addressed and resolved on March 14

HP’s method of leveraging WebOS, product diversity, represents a unique strength – Apotheker just needs to sell his vision


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Energy Sector Pitch


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Overview - Vestas Wind Systems

Wind. It Means The World To Us.


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Thesis

Renewable Energy Expected shift in demand from

conventional to renewable sources Established Platform

Growth potential Price-Pressure preparation Regionalization of production

Undervalued Condition


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Vestas

Wind Power Industry

Development, Manufacture, Sale, Marketing, & Maintenance of Wind Power Systems Expertise within

On-Shore Wind Power Systems


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Onshore

Benefits Construction & logistics Integration with electrical grid network Inexpensive operation & maintenance

Challenges Negative visual impact or noise Obstructions – Buildings, mountains, etc.

Established platform within the onshore sector


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Offshore

Benefits More space; wind is stronger and

consistent Higher power outputs per turbine and

more hours spent generating each year Challenges

Logistical & design challenges High cost – Running sub sea cables to

connect to the grid

Offshore sector’s potential is set to be realized


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Growth Potential – Offshore Expertise


Growth Potential – Offshore Expertise

Design Better corrosion protection Accessibility & safety procedures for service

technicians Highly sophisticated monitoring and control

systems The Vestas Approach

Producing robust turbines which require a minimum amount of maintenance

Estimated offshore market share of 45% at the end of 2010


Vestas – Current Operations

Supply Only Supply Only – Supply turbines Supply & Supervision – Supply & supervise

installation Supply & Commission – Supply turbines &

manpower Supply & Installation

Cranes, manpower, installation and transportation. Engineering Turnkey Project

Installation plus balance of the plan


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Vestas – Financial Overview


Financial Overview

Traded on Copenhagen Stock Exchange Current Share Price

172.1 DKK ~ $ 31.80 ~ €23.01 Market Capitalization

38.35 Billion DKK ~ $ 6.58 Billion Market Share

40% - Offshore & Onshore


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Vestas – Copenhagen vs. ADR Traded on PINK sheets – VWDRY.PK PINK Sheets ADR

Average Volume – 147,000 Copenhagen Stock Exchange

Average Volume – 1.1 million

Liquidity Concern Buy on CO; Hedge FX (if necessary since

KR pegged to the Euro)


Financial Overview

PE Ratio (TTM) 30X compared to the industry ratio of 6X

and the subsector ratio of 12X Sales Growth

5-year average growth rate of 17% Sales (TTM) vs. TTM 1 Year Ago – 36.25%

Current Ratio – 1.25


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Financial Overview

Valuation Discounted Cash Flow

Using Sales Growth of 1.5% meeting management 2011 expectations

Perpetual Sales Growth after for projected sales to be 10 billion at 2015 well under Triple15

Decrease of COGS, % of Sales, by 0.8% in line with management goals

Valuation: €30.39 - €34.83


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Competitive Edge

Management Undervalued Condition Global Presence Regionalized Production Product Differentiation


Management

Ditlev Engel – President and CEO since 2005 Trying to use his influence to spread global

prevalence Extremely Involved – Turned the company

around in 2005 by traveling the world-visiting all of the managers/employees to find out problems


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Undervalued Condition

Over 2010, 50% of share value has been eroded 52 Week Range – 154.90 DKK to 380 DKK

Despite the stock condition, order-intake was up 182% Positive signal for future because of

change in accounting policies Announced significant orders from China

and Germany for 2011


Global Presence


Global Presence

2009 Locations % of Total Sales

Europe / Africa 68

America 21

Asia-Pacific 11

Total 100

2010 Locations % of Total Sales

Europe / Africa 49

America 29

Asia-Pacific 22

Total 100


Regionalized Production

Production transfer from Europe/Africa to USA and China € 789 million investment in China & US Lowered manufacturing costs & reduced

transport needs Rail transportation – Significantly cheaper solution Outgoing Shipment Expenses – €287 million (2010)

compared to €511 million (2009) Money tied up in inventories in transportation Boosts competitive edge; allows preparation

for future price-pressures


Product Differentiation

6 MW Turbine Reduce long term cost

of wind energy Greater electricity

generating capacity thanany commercial offshore product.

Of 3045 MW installed in Europe, 1391 are from Vestas & 1357 are from Siemens Will help further leading position in offshore

turbines


Product Differentiation


Competitors

Vestas’ two main competitors are GE and Siemens

Technology upscale versus competitors GE Turbine Range – 2.5MW to 4MW

turbines Patents

Vestas has filed a total of 787 wind turbine patents

General Electric has 666 Siemens Wind Power has 242


Competitive Edge

Supporting Project Finance Reliable and trustworthy partner, could

contribute to the success of customer’s financing by providing business case certainty through proven technology and product reliability.

Regulatory Expertise Every Vestas business unit across the

Americas, Asia and Europe has a specialized policy and regulatory department


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Potential Risks

Protectionism – Asia-Pacific China – Energy consumption increased

82% Heavy investment in Greentech

advocating growth of local companies Starting to understand the shortcomings

of protectionism – makes solutions more expensive, defers measures and pushes up overall costs

Certain technologies just cannot be provided by local companies

VWS has effective regulatory committees with frontline lobbyists


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Potential Risks

Volatility in commodity prices Vestas depends heavily on Steel Rising raw material prices Increase in Demand

Auto Production (and Construction) seems to be getting back on track

Increased demand from EM economies VWS poised to address input price

increases because of cost efficiency measures being set in place presently


Prospects for Growth

Market value of the sector is expected to increase to $124 billion dollars by 2014 from $75 billion in 2010

China and the EU have both set aggressive targets for cuts in carbon emissions and for output from green energy sources.


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Recommendation

Buy 70 shares at ~ $ 2266 Time Horizon ≥ 2 Years


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Questions?


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Thanks for coming by!

You have 100 coins, 29 of them are heads, rest are tails.

You are BLINDFOLDED. You can reverse any coin.

Your task is to divide this 100 coins into two groups in which there will be the same number of heads.

How would you divide it?

Documents

General Body Meeting 02.24.11. Mutual Investment Club of Cornell Agenda Announcements News Updates Energy Sector Pitch 2