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General Meeting 710.19.2013AnnouncementsPortfolio UpdateMarket UpdateLecture: Asset PricingPitch- ALJImportant DatesMeeting AgendaAnnouncements

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This Week:Business QualityPortfolio Update

Portfolio Update

Portfolio Update- AAPL

Nokia and MSFT just released their new tablets15Portfolio Update- AIG

Why did aig shares pop, travelers posted a good profit, which is good, it shows the industry is doing well, but it did way better than travelers. Analysts were still like idk what happened16Portfolio Update- ENZN

Having to terminating their license and collaboration agreement with Santaris17Portfolio Update- ADNC & IDT

ADNC: +21.8%

IDT: +11.5%Stupid Stock Chart of the Day

+9%-9%-9%Market Update

We just extended the debt ceiling from 16.7T. And now its 17.1T. Good job govt. 20Market Update

-Consumer confidence in October dropped the most pessimistic level about the economys future in 2 years.-the share of people predicting economy will worsen is at the lowest point since when lehman bros collapsed-no doubt from political gridlockNews about jp morgan doing litigation but who gaf

21Asset Pricing

This is a business. A businesss goal is to generate profits (in the form of cash, our medium of exchange). As a shareholder, and thus owner of a business we are the people who get the leftover cash after all obligations have been paid

22Asset Pricing

201320142015?So how do we know how much a stock is worth?The value of the firm is the value of its expected cash flows for the rest of the futureBut if a firm lives on for eternity should the value of the firm be infinite? Well, no but we wont focus on that today.23Asset PricingFirm 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 2013Company reports an actual growth rate of 4% at the end of 2013, what happens?All things held equal, stock price will go downSo we know that a firms value is that of its future cash flowsBut the key thing here is that nobody can predict the future, so we use an estimate or expectation of the CFThe key word here is expected and its where a lot of people mess up in investing. 24Why? Because if a companys 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 2013Company reports an actual growth rate of:4%:5%:6%:Stock price goes downStock price stays the sameStock price goes upInvesting is about finding a stock where your opinion differs from the opinion of all other investors (the EXPECTED performance opinion)So we just said if the actual outcome for a company is worse then the expected outcome, then the share price goes down, why? 25Asset PricingSo 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 arent an infinite number of experts small companies arent as intensely followedAccounting has major flaws that hide value that not everyone has the time to sift throughYou are the expertPension accountingTax AccountingGAAP AccountingThis is why people who actually understand accounting make great investors, because they have an edge on the guys who only took 3 basic accounting courses.26Asset Pricing Sanity Check1.) The value of a firm, and thus the firms stock is determined by EXPECTED future cash flows for the rest of its life2.) 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

20132018Well walk through an easy example of cheating GAAP accounting to find hidden valueAsset PricingInvesting is all about having a variant view- thinking differently than everyone else. MATADOR INVESTMENTS

IntroductionANN CAI NIRAJ PAREKH MATTHEW RINDELAUB ANDREW SMITH

(NYSE: ALJ)Investment Thesis1. Undervaluation Intrinsic & Relative Undervaluation2. Tax Advantage (MLP)3. Strategic PlacementOperations

Strategy

Financials

Overview

Investment StrategyOperations

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Overview

Time Horizon: One yearBuy at current market price: $11.49Stop-Loss at 20%: $9.19Exit on oil price or technicalsCompany OverviewOperations

Strategy

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Overview

Alon USA Energy, Inc.Alon USA Partners, LPMaster Limited Partnership (MLP)Tax ShieldLower cost of capital

OPERATIONS

Operations Divider SlideOperational DivisionsOverview

Strategy

Financials

{As a percentage of 2012 revenue}Refining (81.15%) Paramount, CALong Beach, CABakersfield, CAKrotz Springs, LABig Spring, TX

Fuels marketed to 640 stations under Alon21 third-party distributionsAsphalt (7.53%) 2nd Largest Supplier for TX, CARetail and Branded Marketing (11.31%)

Owns 298 locations Operations

Gross MarginOverview

Strategy

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Operations

Total Daily Production: 250,000 barrels/dayCalifornia (combined): 70,000Krotz Springs:74,000Big Spring:70,000Big Spring:53% Gasoline32.5% Jet Fuel & Distillates5.9% AsphaltSTRATEGY

Strategy Divider SlidePorters Five ForcesOperations

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Overview

Strategy

Strategic Positioning1. Big Spring RefineryMidland Locational AdvantageInexpensive Sour Crude Refining Technology2. DiversificationC-Store Revenue StreamsCalifornia RefineriesOverview

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Risks & MitigationOperations

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Overview

Volatility of Crude PricesSingle Refinery = 60% of Gross MarginLargest Supplier & Customer is J. AronContinuing dominance of crude over NGLarge enough discount marginPast performanceExtensive maintenance performed as recently as 2011 J. Aron is fully owned by Goldman SachsSupply risk is alleviated by Permian Basin expansion

FINANCIALS

Financials Divider SlideComparablesOverview

Operations

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Financials

ComparablesOverview

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CVIHFCMROVLOWNRALJTEV/Unlevered FCF 6.1x5.4x19.2x11.6x5.3x3.9xMkt Cap/Levered FCF 6.0x5.9x17.0x10.5x5.2x2.6xCVIHFCMROTSOVLOWNRALJTEV/Revenues 0.4x0.4x1.9x0.3x0.2x0.3x0.2xTEV/EBITDA2.7x2.8x3.1x5.6x3.8x3.1x2.4xTEV/EBIT3.0x3.1x4.7x6.8x4.7x3.4x3.2xP/E5.8x5.5x15.6x9.9x7.4x7.7x5.2xP/TangBV 2.7x2.3x1.3x1.5x1.1x3.0x1.3xCompaniesTicker: Alon USA Energy, Inc. ALJCVR Energy, Inc. CVIHollyFrontier Corporation HFCMarathon Oil Corporation MROTesoro Corporation TSOValero Energy Corporation VLOWestern Refining, Inc. WNRALJMedianImplied PriceTEV/Revenues 0.20x0.30x $ 17.24 TEV/EBITDA2.40x3.10x $ 14.84 TEV/EBIT3.20x3.40x $ 12.21 P/E5.20x7.40x $ 16.35 P/TangBV 1.30x1.50x $ 13.26 TEV/Unlevered FCF 3.90x5.75x $ 16.94 Mkt Cap/Levered FCF 2.60x5.95x $ 26.29 Average Implied Price: $ 16.73 ALJ Current Price: $ 11.49 Discount:46%Financials

Discounted Cash FlowOverview

Operations

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Financial AnalysisOverview

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Financials

MATADOR INVESTMENTS

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