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General Meeting 710.19.2013
• Announcements• Portfolio Update•Market Update• Lecture: Asset Pricing• Pitch- ALJ• Important Dates
Meeting Agenda
Announcements
Announcements
Announcements
Announcements
Announcements
Register at usiteam.org/events
Fall Portfolio Challenge
$5 entry fee
Announcements
Frisbee with the Board
TODAY at 8:30 after meetingSouth Mall Lawn
Announcements
Technical WorkshopsEvery Thursday 7-8SAC2.120
This Week:Business Quality
Portfolio UpdatePortfolio SummarySector Exposures Dollar Amount % AllocationInformation Technology $2,154.67 30%Energy $0.00 0%Consumer Services $0.00 0%Consumer Goods $0.00 0%Financials $1,232.50 17%Industrials $539.50 7%Health Care $1,238.50 17%Utilities $0.00 0%Telecommunication Services $1,502.25 21%Basic Materials $582.10 8%
Sector Exposures + CashInformation Technology $2,154.7 15%Energy $0.0 0%Consumer Services $0.0 0%Consumer Goods $0.0 0%Financials $1,232.5 9%Industrials $539.5 4%Health Care $1,238.5 9%Utilities $0.0 0%Telecommunication Services $1,502.3 10%Basic Materials $582.1 4%Cash $7,120.9 50%
Historical PerformanceInvested Capital Cash Exposure AUM Weekly Portfolio Return Cumulative Return Since 8/30/13 Exp-Adj Weekly Return Exp-Adj Cum. Return
8/30/2013 $4,396.8 $9,716.0 31.2% $14,112.8 - 0.0% 0.0%9/6/2013 $7,739.3 $6,556.9 54.1% $14,296.2 1.3% 1.3% 2.40% 2.4%9/13/2013 $4,328.6 $9,922.9 30.4% $14,251.5 (0.3%) 1.0% (1.03%) 1.3%9/20/2013 $4,381.9 $9,922.9 30.6% $14,304.8 0.4% 1.4% 1.22% 2.6%9/27/2013 $5,911.2 $8,226.2 41.8% $14,137.4 (1.17%) 0.17% (2.80%) (0.3%)10/4/2013 $5,847.4 $8,226.2 41.5% $14,073.6 (0.45%) (0.28%) (1.09%) (1.4%)10/11/2013 $7,037.0 $7,120.9 49.7% $14,157.8 0.60% 0.32% 1.20% (0.2%)10/18/2013 $7,249.5 $7,120.9 50.4% $14,370.4 1.50% 1.83% 2.98% 2.8%
15%
0%
0%
0%
9%
4%
9%
0% 10%
4%
50%
Information Technology
Energy
Consumer Services
Consumer Goods
Financials
Industrials
Health Care
Utilities
Telecommunication Services
Basic Materials
Cash
Portfolio Update
Current PositionsTicker Shares Cost Per Share Total Cost Basis Purchase Date PX_LAST Total Market Value Gain/Loss Gain/Loss % Sector Position SizeAAPL US Equity 3 $486.11 $1,458.32 8/13/2013 $508.89 $1,526.67 $68.35 4.7% Information Technology 10.6%ADNC US Equity 50 $10.51 $525.50 8/13/2013 $12.56 $628.00 $102.50 19.5% Information Technology 4.4%CBRX US Equity 125 $6.82 $852.13 8/14/2013 $7.14 $892.50 $40.38 4.7% Health Care 6.2%ENZN US Equity 200 $1.96 $391.00 8/13/2013 $1.73 $346.00 ($45.00) -11.5% Health Care 2.4%IDT US Equity 75 $18.00 $1,349.65 8/14/2013 $20.03 $1,502.25 $152.60 11.3% Telecommunication Services 10.5%SWKH US Equity 400 $1.13 $450.00 8/13/2013 $1.12 $448.00 ($2.00) -0.4% Financials 3.1%U CN Equity 125 $4.64 $579.68 8/28/2013 $4.66 $582.10 $2.43 0.4% Basic Materials 4.1%AGX US Equity 25 $21.67 $541.75 9/26/2013 $21.58 $539.50 ($2.25) -0.4% Industrials 3.8%AIG US Equity 15 $49.37 $740.55 10/10/2013 $52.30 $784.50 $43.95 5.9% Financials 5.5%Historical Performance
Invested Capital Cash Exposure AUM Weekly Portfolio Return Cumulative Return Since 8/30/13 Exp-Adj Weekly Return Exp-Adj Cum. Return8/30/2013 $4,396.8 $9,716.0 31.2% $14,112.8 - 0.0% 0.0%9/6/2013 $7,739.3 $6,556.9 54.1% $14,296.2 1.3% 1.3% 2.40% 2.4%9/13/2013 $4,328.6 $9,922.9 30.4% $14,251.5 (0.3%) 1.0% (1.03%) 1.3%9/20/2013 $4,381.9 $9,922.9 30.6% $14,304.8 0.4% 1.4% 1.22% 2.6%9/27/2013 $5,911.2 $8,226.2 41.8% $14,137.4 (1.17%) 0.17% (2.80%) (0.3%)10/4/2013 $5,847.4 $8,226.2 41.5% $14,073.6 (0.45%) (0.28%) (1.09%) (1.4%)10/11/2013 $7,037.0 $7,120.9 49.7% $14,157.8 0.60% 0.32% 1.20% (0.2%)10/18/2013 $7,249.5 $7,120.9 50.4% $14,370.4 1.50% 1.83% 2.98% 2.8%
Portfolio Update- AAPL
Portfolio Update- AIG
Portfolio Update- ENZN
Portfolio Update- ADNC & IDT
ADNC: +21.8%
IDT: +11.5%
Stupid Stock Chart of the Day
+9%-9%
-9%
Market Update
Market Update
Asset Pricing
Asset Pricing
2013 2014 2015
∞?
Asset Pricing
Firm Value = Cash Flow Next Year + Cash Flow The Year After +
Cash Flow The Year After + Cash Flow The Year After +
Cash Flow The Year After + Etc.
*EXPECTED*
Expected growth rate of 5% for 2013
Company reports an actual growth rate of 4% at the end of 2013, what happens?
All things held equal, stock price will go down
Why? Because if a company’s stock value is just the sum of its future cash flows, then the future cash flows just became smaller, so stock value goes
down.
Asset Pricing
Expected growth rate of 5% for 2013
Company reports an actual growth rate of:
4%:5%:6%:
Stock price goes down
Stock price stays the same
Stock price goes up
Investing is about finding a stock where your opinion differs from the opinion of all other investors (the EXPECTED performance opinion)
Asset Pricing
So if I have to understand a company better than the experts to find a 6% growth rate when the experts expect 5%, how can I hope to compete as a college student?
There aren’t an infinite number of experts – small companies aren’t as intensely followed
Accounting has major flaws that hide value that not everyone has the time to sift through
You are the expert
Pension accountingTax Accounting
GAAP Accounting
Asset Pricing Sanity Check
1.) The value of a firm, and thus the firm’s stock is determined by EXPECTED future cash flows for the rest of its life
2.) We look for investments where we have an edge on everyone
else to find investments where the reality is going to be better than the expectation
2013 2018
We’ll walk through an easy example of cheating GAAP accounting to find hidden value
Asset Pricing
Investing is all about having a variant view- thinking differently than everyone else.
MATADOR
INVESTMENTSANN CAI • NIRAJ PAREKH • MATTHEW RINDELAUB •
ANDREW SMITH
(NYSE: ALJ)
Investment Thesis
1. Undervaluation – Intrinsic & Relative Undervaluation
2. Tax Advantage (MLP)3. Strategic Placement
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Investment Strategy
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Time Horizon: One year
Buy at current market price: $11.49
Stop-Loss at 20%: $9.19
Exit on oil price or technicals
Company Overview
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Alon USA Energy, Inc.Alon USA Partners,
LP
Master Limited Partnership (MLP)• Tax Shield• Lower cost of capital
OPERATIONS
Operational Divisions
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{As a percentage of 2012 revenue}
Refining (81.15%)
• Paramount, CA• Long Beach, CA• Bakersfield, CA• Krotz Springs, LA• Big Spring, TX
- Fuels marketed to 640 stations under Alon- 21 third-party distributions
Asphalt (7.53%)
• 2nd Largest Supplier for TX, CA
Retail and Branded Marketing (11.31%)
• Owns 298 locations
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Gross Margin
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Big Spring60%
Krotz Springs
22%
California1%
Asphalt4%
Retail13%
Total Daily Production: 250,000 barrels/day
California (combined):
70,000
Krotz Springs:74,000
Big Spring:70,000
Big Spring:53% Gasoline
32.5% Jet Fuel & Distillates5.9% Asphalt
STRATEGY
Porter’s Five Forces
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Rivalry
Threat of Entrants
Buyer Bargaining
Power
Supplier Bargaining Power
Threat of Substitutes
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Strategic Positioning
1. Big Spring Refinery- Midland Locational Advantage- Inexpensive Sour Crude Refining
Technology
2. Diversification- C-Store Revenue Streams- California Refineries
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Risks & Mitigation
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Volatility of Crude Prices
Single Refinery = 60% of Gross
Margin
Largest Supplier & Customer is J. Aron
• Continuing dominance of crude over NG
• Large enough discount margin
• Past performance
• Extensive maintenance performed as recently as 2011
• J. Aron is fully owned by Goldman Sachs
• Supply risk is alleviated by Permian Basin expansion
FINANCIALS
Comparables
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CVI HFC MRO VLO WNR ALJ0.0x2.0x4.0x6.0x8.0x
10.0x12.0x14.0x16.0x18.0x
Market Cap/Levered FCF
CVI HFC MRO TSO VLO WNR ALJ0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
P/TangBV
CVI HFC MRO TSO VLO WNR ALJ0.0x2.0x4.0x6.0x8.0x
10.0x12.0x14.0x16.0x18.0x
P/E
CVI HFC MRO TSO VLO WNR ALJ0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x8.0x
TEV/EBIT
Comparables
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CVI HFC MRO VLO WNR ALJ
TEV/Unlevered FCF
6.1x 5.4x 19.2x 11.6x 5.3x 3.9x
Mkt Cap/Levered FCF
6.0x 5.9x 17.0x 10.5x 5.2x 2.6x
CVI HFC MRO TSO VLO WNR ALJ
TEV/Revenues 0.4x 0.4x 1.9x 0.3x 0.2x 0.3x 0.2x
TEV/EBITDA 2.7x 2.8x 3.1x 5.6x 3.8x 3.1x 2.4x
TEV/EBIT 3.0x 3.1x 4.7x 6.8x 4.7x 3.4x 3.2x
P/E 5.8x 5.5x 15.6x 9.9x 7.4x 7.7x 5.2x
P/TangBV 2.7x 2.3x 1.3x 1.5x 1.1x 3.0x 1.3x
Companies Ticker: Alon USA Energy, Inc. ALJCVR Energy, Inc. CVIHollyFrontier Corporation HFCMarathon Oil Corporation MROTesoro Corporation TSOValero Energy Corporation VLOWestern Refining, Inc. WNR
ALJMedia
n
Implied Price
TEV/Revenues 0.20x 0.30x $ 17.24
TEV/EBITDA 2.40x 3.10x $ 14.84
TEV/EBIT 3.20x 3.40x $ 12.21
P/E 5.20x 7.40x $ 16.35
P/TangBV 1.30x 1.50x $ 13.26
TEV/Unlevered FCF 3.90x 5.75x $ 16.94
Mkt Cap/Levered FCF
2.60x 5.95x $ 26.29
Average Implied Price: $ 16.73 ALJ Current Price: $ 11.49
Discount: 46%
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Discounted Cash Flow
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Financial Analysis
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MATADOR
INVESTMENTSQUESTIONS
Pitch Sign-Ups
