advisory board meeting – spring 2013€¦ · total portfolio value $101,978.05 portfolio holdings...
TRANSCRIPT
Advisory Board Meeting – Spring 2013July 31st, 2013
William Li, Chief Executive OfficerDustin Fader, Chief Investment Officer
Jing Xu, Chief Strategy Officer
Agenda
2
SAF Investment Fund Overview
Stock Selection: Process & Methodology
Portfolio Performance
Investment Action
Stock Pitches
Next Steps
Global Macro Outlook
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FUND OVERVIEWhttp://www.saf.uwaterloo.ca/SAF/SAFInvestmentFund.html
SAF Investment Fund
The Team – Introductions
4
Student Investment TeamL to R: (Back) Michael Blake, William Ye, Howard Leung, Henry Yu, Harsh Shah, David Chan, Chi Liu, Marco Chan, Hao Qin, Andrew Xue, Derek Wan, Sean Bak(Center) Tiffany Chung, Charis Zhang, Jing Xu, Linda Teng, William Li(Front) Bojan Joncevski, Krishna Murali, Courtland Livesley James, Louis Hong, Dustin Fader
Faculty
5
Faculty:L to R: Alan Douglas, Craig Geoffrey, Ranjini Jha, Andrew Ecclestone
Advisory Board
Aazar Zafar CA, CFA
Principal
Anish Chopra CA, CFA, CBVMD and Head (Core Canadian Equities)
John Gort CA, CFA
Vice President and CFO
Dr. Thomas ScottDirector
Dennis HuberVice President, Finance
Jeffrey D. StaceyFounding Partner
Industry Mentors
Derek ChuCPA, CAAssociate Director
Aly Hadibhai CA, CFADirector
Kevin Huynh CA, CFAIB Analyst
Simon Kwan CAAnalyst
Dan LavricCFAPortfolio Manager
David MiddletonCA, CFAManaging Director
Saran Ananth
Senior Risk Analyst
Ohad LedererCA, CPA, CFAInvestment Analyst
Industry MentorsNiall GlynnCFAAssociate
Mike WilliamsCFA, MBA, MTax, P. EngPortfolio Manager
Jin Li
Research Associate
Ian GutwinskiCAIB Analyst
Meng WangIB Analyst
Investor Policy Statement
9
Category Restriction
Asset Class Canadian Equities
Market Capitalization
$300 Million +
Debt Rating S&P greater than B (or equivalent)
IndividualHoldings
< 10% of Fund assets
Industry Sectors
< 25% of Fund assets
TradingVolume
< 5% of 10-day daily average
Exemption during one-year
“phase-in period”
WL11
Slide 9
WL11 Compliance!!!William Li, 2013-04-15
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STOCK SELECTION: PROCESS & METHODOLOGY
SAF Investment Fund
Quantitative Ranking Methodology
11
• Define universe of stocks in each industry
• Select metrics relevant to the industry
• For each metric, rank universe from first to last
• Add up rankings across all metrics to get final “Score” for each stock
• Arrive at final ranking based on each stock’s “Score”
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PORTFOLIO PERFORMANCESAF Investment Fund
Performance – Last 4 Months
13
$94,000
$96,000
$98,000
$100,000
$102,000
$104,000
$106,000
$108,000Fourth Semester (May 1/13 – Jul 23/13)
S&P/TSX Composite Index Total Portfolio Value S&P/TSX Total Return Share Pricing
Performance – First Round of Funding
14
$48,000
$49,000
$50,000
$51,000
$52,000
$53,000
$54,000
$55,000
$56,000
$57,000First Deposit to Second Deposit (Jul 31/12 – Feb 1/13)
S&P/TSX Composite Index Total Portfolio Value S&P/TSX Total Return Index
Performance – Second Round of Funding
15
$90,000.00
$92,000.00
$94,000.00
$96,000.00
$98,000.00
$100,000.00
$102,000.00
$104,000.00
$106,000.00Second Deposit until Now (Feb 04/13 – Jul 23/13)
Portfolio Value S&P/TSX Comp. Index S&P/TSX Total Return Index
Performance Data
16
1st Funding 2nd Funding
7/31/12 2/01/13 2/04/13 7/23/13
Equity Value 0.00 39,823.29 39,711.67 83,023.11
Cash 50,000.00 12,326.93 62,326.93 17,845.34
Dividends 0.00 508.60 508.60 1,550.59
Total Portfolio Value 50,000.00 52,658.82 102,547.20 102,419.04
Period Return 5.32% -0.12%
Average %Cash Held 42.50% 21.72%
Period Dividend Yield 1.02% 1.51%
Capital Gain 4.30% -1.64%
Period Return Value Added Period Return Value AddedS&P/TSX Composite Index 9.47% -4.15% 0.22% -0.34%S&P/TSX Total Return Index 11.80% -6.48% 1.87% -2.00%
Performance Data Since Start of Trading, 31 July 2012 to Current, 23 July 2013
17
Return Since Inception 2.42%
Dividend Yield 1.55%
Capital Gain 0.87%
Average Cash Holdings 32%
S&P/TSX Composite Index 9.26%
Value Added -6.85%
S&P/TSX Total Return Index 13.50%
Value Added -11.08%
Holdings
18
100 Shares
35 Shares
$2,741.90
$78.34
$32.82
$3,282
53 Shares
$30Limit
$1,590
Holdings
19
Company NameShares
Purchased Purchase Date
Average Purchase
Price
Share Price as of July 23,
2013Total
Holding Return to Date
Agrium Inc. 50 Dec. 5/12 101.41 91.31 $4,566 -9.96%Black Diamond Group Limited 239 Mar.28/13 20.96 24.84 $5,937 18.51%The Bank of Nova Scotia 164 Mar.27/13 59.18 58.35 $9,569 -1.41%
Capital Power Corporation 185/268
Dec.5/12 & Mar.27/13
21.77/21.64 21.38 $9,685 -2.99%
Fortis Inc. 150/115Aug.3/12 &
Apr.15/1333.38/33.35 32.4 $8,586 -5.78%
Goldcorp Inc. 104/189Dec.15/12 &
Mar.28/1338.05/33.48 30.69 $8,992 -16.39%
Sales
20
Company NameShares
PurchasedPurchase
Date
Average Purchase Price Status Sell Price Total Funds
Return to Date
BCE, Inc.119/
91Dec.5/12 &
Mar.27/1342.08/46.72 Sold 42.52 $8,929 -7.97%
Canadian Tire Corp. Ltd. 76 Dec.5/12 66.01 Sold 83.93 $6,379 27.15%
Glentel Inc. 475 Mar.27/13 19.67 Sold 17.75 $8,431 -9.74%National Bank of Canada
65/63
Aug.3/12 & Mar.27/13
74.76/75.59
Reduced(-35) 78.34 $2,742 11.06%
Suncor Energy Inc. 316 Mar.27/13 31.00
Reduced(-100)
32.81/32.82 $3,282 5.84%
Holdings
21
$14.50$41
$21
New Purchases
22
Company NameShares
Purchased Purchase DateAverage
Purchase PriceTotal Purchase
Cost
AutoCanada Inc. 176 Jul.26/13 27.75 $4,890.95
Avigilon Corporation 278 Jul.26/13 18.07 $5,030.41
Artis Real Estate Investment Trust 350 Jul.31/13 14.50 $5,088.90
Martinrea International Inc. 423 Jul.26/13 11.69 $4,953.05
Cameco Corporation 238 Jul.30/13 21 $5,004.95Valeant Pharmaceuticals International, Inc. 53 Jul.26/13 94.13 $4,995.84
Number of Shares Limit Price
Total Investment
Baytex Energy Corp. 189 $41 $7,749
Potential Buys
Stock Allocation
23
Portfolio Holdings 31 July 2013
Company Name Market Value
Percentage of Total
Portfolio
Agrium Inc. $4,357.00 4.27%
Artis Real Estate Investment Trust $5,075.00 4.98%
AutoCanada Inc. $5,031.84 4.93%Avigilon Corporation $5,143.00 5.04%Bank of Nova Scotia $9,513.64 9.33%Baytex Energy Corp. 0.00%Black Diamond Group Limited $5,874.62 5.76%
Cameco Corporation $4,998.00 4.90%Capital Power Corporation $9,440.52 9.26%Fortis Inc. $8,556.85 8.39%
Goldcorp Inc. $8,488.21 8.32%
Martinrea International Inc. $5,076.00 4.98%
National Bank of Canada $7,347.93 7.21%Suncor Energy Inc. $7,011.36 6.88%Valeant Pharmaceuticals International, Inc. $5,050.90 4.95%
Total Equity Value $90,964.87
Cash $11,013.18Total Portfolio Value $101,978.05
Portfolio Holdings23 July 2013
Company Name Market Value
Percentage of Total
Portfolio
Agrium Inc $4,565.50 4.46%
Bank of Nova Scotia $9,569.40 9.34%
BCE INC NEW $8,864.10 8.65%
Black Diamond Group Limited $5,936.76 5.80%
Canadian Tire $6,344.48 6.19%
Capital Power Corporation $9,685.14 9.46%
Fortis Inc $8,586.00 8.38%
Goldcorp Inc $8,992.17 8.78%
National Bank of Canada $9,978.88 9.74%
Suncor Energy $10,500.68 10.25%
Total Equity Value $83,023.11 81.06%
Cash $19,396.42 18.94%
Total Portfolio Value $102,419.53 100.00%
Sector Allocation
24
Sector Current
Consumer Discretionary 7.6%
Consumer Staple 0.00%
Energy 12.7%
Financials 23.6%
Health Care 0.00%
Industrials 7.2%
Information Technology 0.00%
Materials 16.3%
Telecommunication Services 10.7%
Utilities 22.0%
TSX
4.8%
2.8%
24.9%
33.2%
2.2%
6.7%
1.5%
16.6%
5.4%
2.0%
Change in Sector
Holdings
-2.1%
0.0%
-4.9%
+0.50%
+5.5%
+4.8%
5.5%
+3.4%
-10.7%
-2.2%
New
5.5%
0.0%
7.8%
24.1%
5.5%
12.0%
5.5%
19.7%
0.0%
19.8%
Diff (New & TSX)
1.0%
-2.8%
-16.7%
-13.6%
3.7%
6.1%
4.4%
4.3%
-5.4%
19.0%
Portfolio Capitalization
25
Small18%
Mid33%
Large49%
By Portfolio Weighting
Small-Cap23%
Mid-Cap31%
Large-Cap46%
By # of Stocks
Current Correlation MatrixSecurity
AGU BDI BNS CPX FTS G NA SU
AGU 1 0.295 0.467 0.171 0.348 0.161 0.424 0.507
BDI 0.295 1 0.34 0.211 0.334 0.055 0.289 0.394
BNS 0.467 0.34 1 0.207 0.537 0.128 0.667 0.596
CPX 0.171 0.211 0.207 1 0.325 0.123 0.251 0.222
FTS 0.348 0.334 0.537 0.325 1 0.158 0.469 0.493
G 0.161 0.055 0.128 0.123 0.158 1 0.114 0.279
NA 0.424 0.289 0.667 0.251 0.469 0.114 1 0.529
SU 0.507 0.394 0.596 0.222 0.493 0.279 0.529 1
Average
0.358
0.314
0.415
0.258
0.376
0.205
0.398
0.450
New Correlation Matrix
27
Security AGU BDI BNS CPX FTS G NA SU ACQ AVO AX.UN CCO VRX
AGU 1 0.295 0.467 0.171 0.348 0.161 0.424 0.507 0.113 0.07 0.33 0.422 0.282
BDI 0.295 1 0.34 0.211 0.334 0.055 0.289 0.394 0.117 0.107 0.375 0.303 0.294
BNS 0.467 0.34 1 0.207 0.537 0.128 0.667 0.596 0.142 0.111 0.342 0.459 0.387
CPX 0.171 0.211 0.207 1 0.325 0.123 0.251 0.222 0.093 -0.011 0.363 0.219 0.151
FTS 0.348 0.334 0.537 0.325 1 0.158 0.469 0.493 0.151 -0.012 0.429 0.387 0.27
G 0.161 0.055 0.128 0.123 0.158 1 0.114 0.279 0.032 0.069 0.134 0.246 0.099
NA 0.424 0.289 0.667 0.251 0.469 0.114 1 0.529 0.171 0.067 0.34 0.454 0.337
SU 0.507 0.394 0.596 0.222 0.493 0.279 0.529 1 0.187 0.092 0.414 0.595 0.375
ACQ 0.113 0.117 0.142 0.093 0.151 0.032 0.171 0.187 1 0.065 0.277 0.112 0.038
AVO 0.07 0.107 0.111 -0.011 -0.012 0.069 0.067 0.092 0.065 1 -0.208 0.018 -0.061
AX.UN 0.33 0.375 0.342 0.363 0.429 0.134 0.34 0.414 0.277 -0.208 1 0.245 0.218
CCO 0.422 0.303 0.459 0.219 0.387 0.246 0.454 0.595 0.112 0.018 0.245 1 0.143
VRX 0.282 0.294 0.387 0.151 0.270 0.099 0.337 0.375 0.038 -0.061 0.218 0.143 1.000
Average
0.358
0.314
0.415
0.258
0.376
0.205
0.398
0.450
0.190
0.087
0.332
0.359
0.262786
Portfolio Characteristics
28
After Limit TradesPortfolio Volatility: 12.53%
Beta: 0.876
Sharpe Ratio: 0.98
Expected Capital Return: 11.6%
Dividend Yield: 3.24%
Expected Total Return: 14.84%
CurrentPortfolio Volatility: 12.29%
Beta: 0.852
Sharpe Ratio: 0.85
Expected Capital Return: 10.05%
Dividend Yield: 3.03%
Expected Total Return: 13.08%
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TERM INITIAL MACRO OUTLOOKSAF Investment Fund
Market sentiment has been strong Confidence seem to be driven more by expectation than
by actual economic numbers Europe remains a key risk China GDP expected to grow again at 8% level Japan is taking bold actions to boost growth U.S. growth is expected to pick-up and remain key focus Canada will likely lag behind
Light in the Tunnel
30
Past few years have been macro driven due to economic uncertainty and weakness European debt crisis China slowdown fear
Recent economic indicators have shown positive trend Job growth Housing data Manufacturing activity
Current market environment Decreasing correlation in stock price More dispersed intra-sector stock price volatility Low market volatility
Shift From Macro to Fundamental
31
Strategy for the Term
32
• Low correlation• High individual
stock standard deviation
Sector bests more difficult
• Low market volatility
Favours value investing • Focus on
fundamental analysis
• Look for quality and liquidity
Stock picking
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GLOBAL MACRO OUTLOOKSAF Investment Fund
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INVESTMENT ACTIONSAF Investment Fund
July 31, 2013
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SOLD POSITIONSSAF Investment Fund
Bell CorporationUpdating Coverage
July 31, 2013
Linda Teng, Portfolio ManagerCharis Zheng, Analyst
Bell Corporation (TSX:BCE)
37
Valuation Metrics 1 Year Performance vs. Sector IndexRecent News
Fund Portfolio Data Football Field Valuation (July 25, 2013)Investment Outlook
• Bell-Astral deal closed on 2013/07/05 for $3.4B
• Sony Xperia Z coming exclusively with Bell
• Bell Mobile TV Expands with Sportsnet and other channels
• Verizon Communications Inc. may enter the Canadian wireless market; will affect dividend and free cash flow growth
$0 $10 $20 $30 $40 $50 $60
52 - Week Range
Analysts' Concensus
DCF without Verizon
DCF with Verizon4.6x-8.6x multiple,
2.94%-6.94% WACC
4.6x-8.6x multiple, 2.94%-6.94% WACC
Share Price ($) $42.55 Market Cap ($mm) $33,014.23 P / EPS 2012 15.78 P / EPS 2013E 14.00 P / B Current 3.09 EV/ EBITDA 2012 6.69 Debt/EBITDA 2.00 EBITDA/Interest 9.24 ROE 2012 20.71 Dividend Yield (%) 5.48
Current Price ($) $42.55 Shares Owned 210.00 Market Value $8,935.50 Initial Purchase Date 13-03-22Avg Price Purchased $44.37 % Until Target Price -1.6%Return - Inception -4.1%Return - TTM 1.4%Return - YTD -0.2%
Recommendation SellSAF SIF Target Price $41.86 Analyst Target Price $44.60 Previous Target Price $51.59 Stop Loss: Soft: -Investment Thesis: Bell-Astral DealLeast affected by Verizon entryRisks: Spectrum Auction,Consolidation with Astral, Verizon
708090
100110120
Bell CorporationComposite Index Telecommunication Services
Canadian Tire (TSX:CTC.B)
38
Holding Summary June 5, 2013 Valuation Update
Reasons for Sale
Purchase SaleNews Event
Holding Period Nov. 30, 2012 – July 24, 2013
Purchase Price $66.01
Sale Price $83.93
Return 27.15% (excl. dividends)
Index Return 3.54% (excl. dividends)
Company announcement of REIT, 18 million square feet at $3.5 billion
New valuation using sum‐of‐parts
Revised target price to $87
Hold recommendation awaiting market reaction to Loblaw's REIT IPO
Lack of clear information surrounding proposed REIT too high
Increased uncertainty does not fit desired risk profile
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NEW PURCHASESSAF Investment Fund
July 31, 2013
Louis Hong, Portfolio ManagerSean Bak, Analyst
AutoCanadaInitiating Coverage
Consumer Discretionary Sector
AutoCanada (TSX:ACQ)
41
Holding Summary Investment Thesis
Purchase Price $27.75, July 24, 2013
Market CapNet Debt
$607.26 mm$227 mm
Dividend Yield 2.71%
P/E 2013E 16.31x
ROE 20.4%
Debt/EBITDA 5.09
Valuation
Blended target price of DCF, comparable, and analyst estimates
Buy recommendation to $31.55 target (13% upside from current)
Direct play on Canadian economic recovery and increased automobile spending
Strong growth through acquisition of additional dealerships
PurchaseEquity offering
Key Risks
1. Ability to acquire new dealerships2. Interest rate sensitivity
MartinreaInitiating Coverage
Hao Qin, Portfolio ManagerTiffany Chung, AnalystMichael Blake, Analyst
Industrials Sector
Business SummaryMarket Profile Company Description
Manufacturer of automotive parts and equipment
One of the largest metal forming and fluid systems management companies in North America
Market leader in aluminum parts through the Honselacquisition
Over 12,000 employees in 37 production facilities worldwide
Key Statistics
Ticker Symbol:Market Capitalization: Net Debt52 Week Price Range: Beta: Dividend Yield: P/E: EV/EBITDA: Debt/EBITDADebt Rating:
MRE$1,001 mm $410 mm$6.41-$12.05 1.64 1.0% 25.83x 4.5x 1.90BB (low)*
* Not Rated; BB (low) is our internal assessment using the four largest credit rating agencies’ rating methodologies.
Growth Opportunities
Acquisitions of distressed companies
Opportunity for top line growth through additional program wins as well as bottom line growth through EBITDA margin expansion
Honsel (lightweight aluminum manufacturer) will see increased sales in Europe and China
Leading to closing of discount to peers – 4.6 EV/EBITDA vs. peer average of 5.1-5.4
Description Major Transactions
Company Date PriceThyssenKrupp 11/30/2006 $275 mmHonsel AG 07/29/2011 $129 mm
N. America focused – 79% Ford/GM strong earnings (13%
increase in revenue) - chance to secure additional contracts
US Auto Sales at pre-recession levels: 16 mm units in 2013 with 1.5-2 mm YoYgrowth through 2020
Lower interest rates, credit availability and increased home construction are driving growth
Average car age: 9.28 in Canada, 10.8 in US
North American Exposure for the FundDescription Revenue by Geography (2012A)
Revenue by Geography (2017E)
28%
33%
18%
19%2%
CanadaUSAMexicoEuropeRest of World
19%
30%24%
24%
3%
Canada
USA
Mexico
Europe
Rest of World
Focused Margin ImprovementsDescription Revenue Projections
Shelbyville started to generate positive growth margins in Q1 2013
Hopkinsville is still running net operating losses from high launch costs – room for improvement
Focused on cost reductions through operational improvements
Gross margin expected to grow to 13% in the near term
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$0.00
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Gross Margin Projections
ValuationDiscounted Cash FlowSum of Present Value of Future Cash Flows 125.4Terminal Value 1457.8Enterprise Value 1583.2Less: Long‐Term Debt 357.8Less: Minority Interest 66.2Less: Pension Liabilities 64.8Add: Cash and Cash Equivalents 29.4
Implied Equity Value 1123.8Number of Shares Outstanding (Diluted) 83.7Implied Share Price $13.42Upside % 14.90%WACC CalculationCost of DebtCost of Debt 5.4%Tax Rate 29.6%
After‐Tax Cost of Debt 3.8%Cost of EquityRisk‐Free Rate 2.5%Market Risk Premium 5.5%Levered Beta 1.15
Cost of Equity 8.8%WACC 7.4%
Captain Gain: 13.9%
Dividend Yield: 1%
Total Return: 14.9%
BUY
July 31, 2013
Howard Leung, Portfolio ManagerDavid Chan, Analyst
Henry Yu, Analyst
Artis REITInitiating Coverage
Financials Sector
Financials, Spring 2013
49
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
S&P/TSX Capped Financials Index National Bank of Canada (TSX:NA)The Bank of Nova Scotia (TSX:BNS)
Summary of SAF SIF Decisions
50
• Held since Aug 2012• June 2013 Update: HOLD
National Bank
• Held since March 2013• June 2013 Update: HOLD
Bank of Nova Scotia
• Top Financials Pick• June 2013 Coverage: HOLD• Since been revised to a LIMIT BUY at $14.50/Unit, executed today
Artis REIT
Artis Metrics
Ticker AX.UN IndustryCurrent Price $14.94
Market Cap $1.9 B
NAV Per Unit $16.10
5 Year Beta 1.17 0.66
Distribution/Yield $1.08/7.1%
6.3%
P/AFFO 11.9x 14.2x
AFFO Payout Ratio 81.8% 88.1%
Average CAP Rate 6.4% 6.2%
Debt/GBV 50.2% 51.2%
Leases Avg. Term to Maturity
4.9 Yrs
Average Rent $12.41 $13.51
MetricsBusiness Description
Diversified REIT Operates in Western Canada,
Ontario, and US 223 Commercial Properties
Dividend Yield
Artis Decision
52
Weighted PriceWeighted Price
50% NAV • $16.10
50% NAV • $16.10
40% Multiples• $16.92
40% Multiples• $16.92
10% Analyst• $18.00
10% Analyst• $18.00
Target Price $16.62
That Being Said….
Artis Decision
53
Target Price $16.62 (HOLD)Good Buying Opportunity?
Artis Decision
54
Target Price $16.62 (HOLD)Therefore, analysts should revisit Artis to test discount to NAV and stability of bond yields
@ Purchase Price of $14.50 (July 31st), Discount to NAV: 9.94%
Artis July 2013 Price Range: $14.48 ‐ $15.33/Unit
Artis NAV July 2013: $16.10/Unit
CamecoInitiating Coverage
July 31, 2013
Andrew Xue, Portfolio ManagerBojan Joncevski, Analyst
Courtland Livesley-James, Analyst
Materials Sector
Performance Highlights
56
Valuation Metrics 1 Year Performance vs. Sector Index
60
70
80
90
100
110
120
130
Cameco MSCI Canada Materials
Share Price ($) $ 21.89Market Cap ($ mm) 8,656.13
Net Debt ($mm) 780P/EPS 2012 32.67P/EPS 2013E 23.1P/B Current 1.74EV/EBITDA 2012 13.26Debt/EBITDA LTM 2.03
EBITDA/Interest LTM 9.98
ROE 2012 5.36Dividend Yield (%) 1.8
Company Overview
57
Company Description
Recent Developments Revenue Breakdown (2013 estimate)
• One of the largest uranium producers (14% of global production)• 465 million pounds of reserves in USA, Canada, Kazakhstan• Vertically integrated
• Saskatchewan Royalty Incentives• Canada-India Nuclear Deal• Japan closer to nuclear restart
• Mining ($1,015 mm)• Electricity ($479 mm)• Fuel Services ($282 mm)
Investment Valuation
58
Investment Drivers Sensitivity Analysis• Low-cost Production vs.
Competitors• Synergies from Acquisition• Political Changes
WACC 26.30 14.75% 13.75% 12.75% 11.75% 10.75%
Ura
nium
Pric
e 85 33.51 34.68 35.94 37.29 38.76 75 29.04 30.05 31.12 32.28 33.54 65 24.57 25.41 26.30 27.27 28.31 55 20.10 20.77 21.49 22.26 23.09 45 15.63 16.13 16.67 17.25 17.87
Valuation
• Calculated target price: $26.30
• NAV – mining segment• DCF – fuel & electrcity
segments
Investment Outlook
59
Risks and Sector Outlook
Investment Outlook
• Regulatory risks: Kazakh government adversely impacts operations in Kazakhstan • Operational Risks: Development projects/projects under evaluation do not proceed • Environmental Risks: Environmental regulations
• Recommendation: Buy• Current price: $21.89• Analyst avg. target price (19 estimates): 26.37• Average dividend yield: 1.8%• Our target price: 26.32• Total Upside: 20%
Valeant PharmaceuticalInitiating Coverage
July 31, 2013William Ye, Healthcare Analyst
Healthcare Sector
Performance Highlights
61
Valuation Metrics 1 Year Performance vs. Sector Index
70
90
110
130
150
170
190
210
Valeant MSCI Canada Healthcare
Share Price ($) $ 93.88Market Cap ($ mm) 30,730Net Debt ($mm) 10,507P/EPS 2012 107.64P/EPS 2013E 15.57EV/EBITDA 2012 22.99Debt/EBITDA LTM 6.15EBITDA/Interest LTM 3.72ROE 2012 (3.03)
Company Overview
62
Multinational specialty pharmaceutical company Develops, manufactures, and markets pharmaceutical, over-the-
counter products, and medical devices Two segments: developed and emerging markets
Valeant Business Description
Strategy
Acquisitions Operates in niche markets Focuses on markets with high growth
potential and margins Avoids Primary Care
Recent News
$8.7 billion acquisition of Bausch and Lomb
$2.6 billion acquisition of Medicis Q2 earnings to be released on
August 7, 2013
Risks
63
Patents and Product Exclusivity
Important to ensure competitiveness Some signs of erosion in Canada and U.S. Neurology Combat through growth/acquisitions
Acquisition Risk
Inability to manage growth and integration Steps taken to mitigate: Careful inspection of operation synergy Retention of key personnel Careful evaluation of market in which acquired company
operates
Valuation
64
$103.22= 9.34% Return
Public Comparables
(10%)$77.63
Transaction Comparables
(10%)$84.99
Discounted Cash Flow (40%)$106.78
Other Analysts’ Projections (40%)
$110.63
Avigilon CorporationInitiating Coverage
July 31, 2013
Linda Teng, Portfolio ManagerMarco Chan, Analyst
Information Technology Sector
Performance Highlights
66
Valuation Metrics 1 Year Performance vs. Sector Index
Share Price ($) $17.62 Market Cap ($mm) $689.89 P / EPS 2012 94.98
45.01 9.05
P / EPS 2013EP / B CurrentEV/ EBITDA 2012 56.34 Debt/EBITDA NMEBITDA/Interest NM ROE 2012 13.56 Dividend Yield (%) NM
70
120
170
220
270
320
Avigilon Corp. XIT:TSX Technology IndexSource: CapIQ on 2013/07/25
Company Overview
67
Company Description
Recent Developments Revenue Breakdown
• Designs, manufactures network-based video surveillance systems and equipment • Image capture, storage, transfer and playback of high quality video surveillance
footage with virtually lossless compression• IPO in November 2011• Q1/13 EPS: $0.07 ($0.02 in Q1/12), Revenue: $32MM, Gross Margin: 51%
• Acquired RedCloud Security Inc. for $17MM cash to expand knowledge of security solutions
• Manufacturing space increased by 150% to support growth
• Coverage initiated at RBC Capital• Q2/13 earnings call on 2013/08/08
9%
51%
7%
24%
5%4% Canada
United States
United Kingdom
Europe, The MiddleEast and AfricaAsia-Pacific
Latin America
Investment Valuation
68
Investment Drivers Football Field Valuation (July 25, 2013)
• Intellectual Property highest quality and
lowest bandwidth video capture without
visible light• End-to-end Systems
Seamless integration of Video Management Software and Cameras
• Focus on Growth Rapid expansion
overseas into new markets
$0 $5 $10 $15 $20 $25
52 - Week Range
Analysts' Consensus
DCF Analysis2.4x-3x terminal
multiple, 5.27%-8.27% discount rate
Investment Outlook
69
Risks and Sector Outlook
Fund Portfolio Data Investment Outlook
• Competition – Smaller market cap. than competitors. Less access to financial, technical, sales and marketing resources
• Regulatory & Legal – Intellectual Property vital to sustain competitive advantage• Interoperability standards – Standardization of video mgmt software and cameras • Possible dilution to raise additional capital through financing • Rapid growing industry with revenue to double from 2011 to 2016
Recommendation Buy SAF SIF Target Price $19.57 Analyst Target Price $19.00 Investment Thesis: Expanding IndustryFocus on growth, Intellectual propertyRisks: Competitors, Regulatory & Legal, Interoperability Standards
Current Price ($) $17.62 Shares Owned 298.00 Market Value $5,250.76 Initial Purchase Date 13-07-26Avg Price Purchased $18.07 % Until Target Price 11.1%Return - Inception -2.5%Return - TTM 174.5%Return - YTD 50.6%
Baytex Energy Corp.Initiating Coverage
July 10th, 2013Jing Xu, Chief Strategy OfficerKrishna Murali, Energy Analyst
Harsh Shah, Energy Analyst
Energy Sector
Company Overview
71
Company Description
Recent Developments Revenue Breakdown
• Engaged in the acquisition, development and production of crude oil and natural gas
• Operates in the Western Canadian Sedimentary Basin and in the Williston Basin in the United States
• Approximately 87% of production is weighted towards crude oil and 75% in heavy oil
• 8% production growth and 12% 2P growth YoY
• Peace River Area surpassing production expectation in Q1 2013
• 46 additional undeveloped sections in the Peace River Area
Heavy Oil
Light Oil
NaturalGas
Performance Highlights
72
Valuation Metrics 1 Year Performance vs. Sector Index
85
90
95
100
105
110
115
120
125
Baytex MSCI Canada Energy
Share Price ($) $ 42.76 Market Cap ($mm) $ 5,284.81 P / EPS 2012 39.11 P / EPS 2013E 33.09 P / B Current 4.14 EV/ EBITDA 2012 10.53 Debt/EBITDA 1.00 EBITDA/Interest 13.78 ROE 2012 20.64 Dividend Yield (%) 6.17
Investment Valuation
73
Investment Drivers Football Field Valuation (As of July 10, 2013)
• Production growths and
increase in reserves
• Oil production efficiency
• Expected tightening of
heavy oil differentials
• Expected reduction in
transportation bottlenecks
• Meaningful dividend with
conservative payout ratio
$- $20.00 $40.00 $60.00 $80.00 $100.00
Analyst's Consensus
52 - Week Range
P / CF
EV / DACF
EV / EBITDA
DCF
Investment Outlook
74
• WTI/WCS prices and heavy oil differentials are key risk factors
Source: Net Energy Inc., Argus Media, PIRA
Investment Outlook
75
Recommendation: Limit Buy
SIF Target Price$50
Analyst Target Price
$49.12
Limit Buy
Shares136
Limit Buy Price$41
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GLOBAL MACRO OUTLOOKSAF Investment Fund
Macroeconomic Summary
77
Initial Outlook: Challenge Remains Disappointing growths in emerging market economies Infrastructure bottlenecks and capacity constraints Slower external demand growth Financial stability concerns
Recession in the euro area deeper than expected Low demand Depressed confidence Weak balance sheet
U.S. economy expanding at steady but still weak pace Strong fiscal contraction Slowly improving private demand
Global GDP Growth
78
Canadian Economic Environment
79
Cautious Outlook Continues Stronger than expected Q1 but overnight rate remains at 1% Stronger U.S. private demand transmits to Canada Higher commodity prices & increase in trade volume Upward pressure on rates
Weaker growth in China remains a top concern Slowdown in credit growth and deleveraging Capital outflows and tighter credit conditions
Euro-area crisis is still main source of downside risk Weaker demand Financial market turbulence
Housing market imbalances and household debt
U.S. Housing Indicators
80
Source: IMF
China Slowdown Concerns
81
Source: HSBC
Euro-zone GDP Growth
82
Source: The Economist
Canadian Real Estate Activity
83
Source: CREA
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QUESTION PERIODSAF Investment Fund
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NEXT STEPSSAF Investment Fund
Improvement Initiatives
86
Talent Retention & Knowledge Transfer
Fund Marketing & Exposure
Project Course AFM 418 for students in investment team
New Investor Policy Statement
87
Category Restriction
Asset Class Canadian and U.S. Equities
Market Capitalization (Canadian) C$300 Million +(U.S) US$300 Million +
Debt Rating S&P greater than B (or equivalent)
Individual Holdings < 10% of Fund assets
Industry Sectors < 25% of Fund assets
Trading Volume < 5% of 10-day daily average
New Investor Policy Statement
88
Asset Class Minimum Maximum
Cash and cash equivalents 0% 15%
Canadian equities and income trust units 55% 100%
U.S. equities 0% 30%
Asset AllocationThe Fund will normally adhere to the following Asset Mix ranges for the Fund’s exposure to the allowable investments:
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FINAL QUESTION PERIODSAF Investment Fund
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THANK YOU FOR LISTENING
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APPENDIX
Talent Retention and Knowledge Transfer
92
Waterloo Way Boot Camp
Day 1• Intro to SAF SIF: Overview of Fund, History, Mandate, Mentors, etc.• Intro to SAF SIF: Overview of Fund, History, Mandate, Mentors, etc.
Day 2• Crash course on Excel, Excel plugins, Bloomberg and Capital IQ. Model supplied.• LEARN training: how to find resources• Crash course on Excel, Excel plugins, Bloomberg and Capital IQ. Model supplied.• LEARN training: how to find resources
Day 3• Crash Course on Company Valuation: WACC, DCF & Comp valuation• Example model supplied to allow them to follow along• Crash Course on Company Valuation: WACC, DCF & Comp valuation• Example model supplied to allow them to follow along
Day 4• Economic Moat presentation to identify companies with sustainable advantage• Economic Moat presentation to identify companies with sustainable advantage
Day 5• Putting the Valuation together: Assumptions, Equity Research Report, and Stock Pitch Presentations
• Putting the Valuation together: Assumptions, Equity Research Report, and Stock Pitch Presentations
Portfolio Breakdown
93
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%
Auto ComponentsSpecialty Retail
Oil, Gas and Consumable FuelsCommercial Banks
Real Estate Investment Trusts (REITs)Pharmaceuticals
Commercial Services and SuppliesElectronic Equipment, Instruments and Components
ChemicalsMetals and Mining
Electric UtilitiesIndependent Power Producers and Energy Traders
AutoComponents
SpecialtyRetail
Oil, Gas andConsumable
Fuels
CommercialBanks
Real EstateInvestment
Trusts(REITs)
Pharmaceuticals
CommercialServices and
Supplies
ElectronicEquipment,Instruments
andComponents
Chemicals Metals andMining
ElectricUtilities
IndependentPower
Producersand Energy
TradersPortfolio 4.21% 5.48% 13.60% 18.70% 5.80% 5.55% 6.53% 5.44% 5.04% 9.59% 9.48% 10.59%Index 1.24% 0.12% 24.43% 19.22% 2.33% 1.90% 0.40% 0.12% 2.60% 8.51% 0.64% 0.53%
Sub-Sector Allocation Portfolio v.s. Index
Materials
Information Technology
IndustrialsHealthcare
Financials
EnergyConsumer Discretionary
Utilities
Portfolio Breakdown (Continued)
94
Index PortfolioHotels, Restaurants and Leisure 0.53% 0.00%
Household Durables 0.07% 0.00%
Media 3.11% 0.00%
Multiline Retail 0.72% 0.00%
Textiles, Apparel and Luxury Goods 0.34% 0.00%
Beverages 0.05% 0.00%
Food and Staples Retailing 3.85% 0.00%
Food Products 0.65% 0.00%
Energy Equipment and Services 1.19% 0.00%
Capital Markets 1.36% 0.00%
Diversified Financial Services 0.57% 0.00%
Insurance 8.15% 0.00%Real Estate Management and Development 2.24% 0.00%
Thrifts and Mortgage Finance 0.29% 0.00%
Healthcare Providers and Services 0.81% 0.00%
Index PortfolioAerospace and Defense 0.83% 0.00%
Airlines 0.16% 0.00%
Construction and Engineering 0.47% 0.00%
Machinery 0.09% 0.00%
Professional Services 0.13% 0.00%
Road and Rail 3.97% 0.00%
Trading Companies and Distributors 0.45% 0.00%
Communications Equipment 0.30% 0.00%
IT Services 0.71% 0.00%
Software 0.42% 0.00%
Containers and Packaging 0.15% 0.00%
Paper and Forest Products 0.51% 0.00%Diversified Telecommunication Services 3.57% 0.00%
Wireless Telecommunication Services 1.25% 0.00%
Gas Utilities 0.09% 0.00%Multi-Utilities 0.93% 0.00%
Talent Retention and Knowledge Transfer
95
Meeting Minutes and Investment Scrapbook
Investment Scrapbook contains one-pagers on each of the fund’s investments, key drivers, key risks, price targets, upside potential, stop loss targets, etc. These will allow next term to quickly understand the rational for all investments from prior terms.
Talent Retention and Knowledge Transfer
96
Allow Fund Executives to Use LEARN to:
Communicate each meeting’s assignments and tips Reorganize the “Content” tab to become more
accessible Institute a process for voting and communication such
as: Discussion forum on how to complete assignments Efficient decision making
Standardize evaluation process leading towards future course credit term