general body meeting 03.03.11. mutual investment club of cornell agenda announcements news updates...

General Body Meeting 03.03.11

Mutual Investment Club of Cornell

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Agenda

Announcements News Updates Macro 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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News Updates


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Homex Earnings Update

Met Expectations Down 6% on news

Financials Revenue rose 12.7% EBITDA rose 23.5%

Good buying opportunity? Dr. Doom (Marc Faber) suggests now is

time to buy Real Estate Overreaction by market?


Health Care News: Philip Morris (PM)

U.S. Justice Department mandated apology for all Tobacco Firms

“We falsely marketed low tar and light cigarettes as less harmful than regular cigarettes to keep people smoking and sustain our profits. We knew that many smokers switch to low tar and light cigarettes rather than quitting because they believe low tar and lights are less harmful. They are NOT.”


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Industrials News Update

Alan Calabrese&

Nick Hosseini


Industrials: Boeing (BA)


Boeing

One of the world’s leading defense and aerospace companies

The company supplies a broad array of products and services to the U.S. Department of Defense Design, development, manufacture, sale

and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services


Positive Outlook

The U.S. Air Force announcement as of 2/24 Selected Boeing’s NewGen Tanker to be

its new KC-46A air refueling jet Next-generation tanker that will replace

179 of the service’s 1950s-era KC-135s Based on the new Boeing 787 commercial

airliner


Positive Outlook

Extremely lucrative $35 billion contract

Ended decade long dogfight between Boeing and Airbus

Business jet market has been battered both by falling corporate profits and political headwinds

Illustrates Boeing’s ability to transfer technology laterally among different business lines


Burlington Northern Santa Fe Corp. (BNSF)

Berkshire Hathaway Inc.’s Annual Report 2010 acquisition of Burlington

Northern Santa Fe Corporation (BNSF) “a purchase that’s working out even better than I expected” - Warren Buffet

$16.9 billion in revenue for 2010, up 20% from 2009


MICC: Union Pacific Corporation (UNP)

Only North American railroad company larger than BNSF BNSF is not publicly traded

Upward trend in railroad industry Increased confidence, increased

investment


Telefonica Earnings FY 2010


Revenue

€ 60, 737 million (+7.1 % yoy)

Organic growth Lat Am and Europe - +2.7% Spanish market saw - -1.6% Mobile data – + 19.3%


Earnings

Target – €2.10 v. Actual – €2.25


Guidance

Revenue growth - +2% OIBDA – upper 30s CapEx - + €9 billion

Corporate strategy on contractual and value customers

Grow ARPU


Dividend Increase

Dividend of €1.6/share 14.3% increase Currently appx. 6% yield


Concerns

“Flexible” guidance Uncertainty in Spanish markets


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Financial News

FORCLOSURES Bank of America and Wells Fargo said

they may face fines or enforcement actions from regulators amid investigations into foreclosure procedures

This past Friday BAC claimed the investigation may lead to “significant legal costs”, while Wells Fargo said that penalties are likely

U.S. regulators may try to extract $20 billion of penalties in a settlement with banks that serviced flawed loans


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Financial News

FORCLOSURES (2) Wells Fargo said estimated litigation

losses could be $1.2B beyond the reserve already set aside. Bank of America’s losses may be as much as $1.5B. Citigroup said Friday that as much as $4 billion in additional costs from pending legal matters are “possible, but not probable.”


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Financial News

INSIDER TRADING SEC accused Rajat Gupta, former

director of both Goldman Sachs and P&G, of insider trading

Gupta supposedly passed illegal tips about GS and P&G to Raj Rajaratnam, the Galleon Group founder who is to go on trial next week on insider trading charges

Gupta is the most prominent business executive brought up in the SEC investigation into insider trading on Wall Street


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Safe Bulkers

Macro Team


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Thesis

An improving macroeconomy, will improve market conditions for shipping companies.

Safe Bulkers is a best of breed shipping company.


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Marine Shipping

2008 economic crisis causes massive decline in global shipping volume and rates


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Shipping Rates – Dry Bulk

Handy < Handymax < Panamax < Capesize/Post Panamax


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Short-Term Outlook

• Tepid recovery in Post-Panamax rates

• Panamax, Handymax, and smaller size carrier rates more resilient

• Return to yoy growth in global shipping

• Idled ships back on line; few new orders, however


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Long-Term Outlook

• Solid global economic growth rates increasing shipping volume

• Some speculate a container ship supply shortage in 2012

• New orders• Industry consolidation• 2014 Panama canal expansion


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Company Overview

Secures dry bulk cargo for international shipping Coal, grain and iron ore

16 dry bulk vessels for transportation services Aggregate carrying capacity of 1,443,800

deadweight tons Average age of the fleet is 3.80 years

(12/31/10) Nine additional new vessels have been

contracted (2013)


Major Dry Bulk Trade Routes


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Company Overview

Headquarter: Athens, Greece Founded in 2007

Corporate structure 26 subsidiaries

Top customers Bunge Limited, Cargill International,

Daiichi Chuo Kisen Kaisha, and their affiliates


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Fleet Data


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Current Fleet


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Fleet Expansion


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Fleet Expansion


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Major Clients

Bunge Limited Very Strong and Low Risk Company 2010 Sales of $45.71B with a previous years growth of

9.02% 2010 Net income of $2.35B with a 552.08% 1-Year Net

Income Growth Cargill International

Private but highly visible and successful 2009 Sales of $116.58B with a yearly decline of 3.20% 2009 Net Income of 3.33B with a yearly decline of

15.62% Daiichi Chuo Kisen Kaisha


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Baltic Dry Index


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Beta vs. SPX


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Beta vs. BDIY


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Analyst Price Targets


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Financials

Current Share Price: $9.16 Div Yield: 6.55% Market Capitalization: 603.45M EPS: 1.76 P/E: 5.22 Profit Margin: 69.83% Operating Margin: 67.97% Quarterly Revenue Growth: 12.9%


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Dividend History


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Financials

Total Cash:100.42M Total Debt: 494.74M


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Short Term Debt


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Long Term Debt


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Financial Comparison


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Current Shipping Difficulties

Industry severely effected by the floods in Australia, Indonesia and South Africa.

In addition, commodity export bans in countries like Russia and India are effecting business revenue.

Why Safe Bulkers? Very low operating costs Low spot exposure for its relatively young

fleet


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Shipping Potential

Shipping by sea is still the only economical way to transport goods internationally

Shipping rates have remained significantly below pre-recession peaks The Baltic Dry Index (main measure of

shipping rates) surpassed 11,000, it is currently below 3,000

When the global recovery takes place they are in prime position to capitalize

Increased demand for and prices of commodities Shippers have not yet caught the

attention of investors


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Major Competitors

Excel Maritime Carrier Ltd. (NYSE: EXM) Has a higher spot exposure of more than 60% High Debt to equity Ratio Negative Earnings Growth No dividend

Dry Ships Inc. (NYSE: DRYS) Highlighted by a 15% loss over the past 6 months Enormous PE ratio and much less EPS High operating costs and their recent plan for

ultradeepwater rig business (drillships) has yet to be proven – too much risk


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Specific Competitor Details


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Competitors


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Contracts and Risk

Mix of long term (>3 months) and short term (<3) contracts

11 of 13 vessels employed on long term contracts as of 2009

Currency and interest rate hedges Early redelivery income/costs 2011 contract coverage >80%; 2012 ~ 60% Net voyage revenue up 12% y-y 74% income from 2 charterers


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Risks – National Concerns

Rioting in Greece, unrest in Libya Vulnerable to terrorism, ending up in

warzone Rising Oil prices Ship to China and Japan, difficult to do

business in China


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Risks – International Concerns

80% of company is owned by a single group, 20% by stockholders

A lot riding on 16 vessels, problems with just one could be devastating

Contract to 3-business account for 80% of their business, vulnerable if one backs out

Had difficulty finding others to contract to Building New Tankers on Speculation

9 vessels expected through 2013 $171 million in 2011, $70.4 million in 2012, $22.2 million in 2013 Great deal of money up front

Foreign Exchange Risk


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Time Horizon &Proposal

Time Horizon: 1yr+ Improving macroeconomy Dividend

Currently trading at $9.03 Buy 400 shares Market Value ≈ $3,600


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Questions?


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Thanks for coming by!

You have two jars, 50 red marbles, 50 blue marbles.

You need to place all the marbles into the jars such that when you blindly pick one marble out of one jar, you maximize the chances that it will be red. You can arrange the marbles however you like, but each marble must be in a jar.

How do you do it?

general body meeting 03.03.11. mutual investment club of cornell agenda announcements news updates...

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