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University of Winnipeg Investment Group

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Presentation on theme: "University of Winnipeg Investment Group"— Presentation transcript:

1 University of Winnipeg Investment Group
Investment Analysis University of Winnipeg Investment Group

2 Investment Philosophy
Growth: The expectation that a company possesses the capabilities to grow astronomically through time Value: The analytics that determine if a company is trading below, equal, or over its fundamental value

3 Return on Investment Stock appreciation: Shares in the company gain value Dividends: The company pays you a return on your invested capital Share Buyback: The company buys back shares, returning your capital, and increasing the stock price

4 What to look for? Objective: Purpose for analyzing a company
Quantitative: The numbers, ratios, indicators that measure the stock Qualitative: The research into all information/facts about the company and non number measures Thesis:Overall findings and beliefs about a company/investment Conclusion:Recommendation of findings and action plan

5 Qualitative Sector Analysis Organizational review Management review
Production analysis Competition outlook Environment Scan Legislation/Taxation

6 Sector Outlook How predictable is this industry?
How profitable is the industry? What growth opportunities exist? Is it consistent? Are there risks/hurdles ahead? What supply/demand forces exist and how does it change?

7 Organization What contracts/guaranteed sales are in place?
How do they hedge risk/earnings? What territories do they operate in? How are the relations with government, suppliers, employees, competitors? Who are the consumers?

8 Management What is the vision/mission?
What are their beliefs, characteristics? How much of the company does management own? What kind of organization/culture do they foster? What are their incentives/pay packages?

9 Production/Productivity
How is production set up? How efficient are they? What are the logistics involved? How are the work forces set up? North America/Overseas, unionized, non-unionized? Stable or volatile workforces?

10 Competition What competitors are similar?
Are they in the same target markets? How does their strategy differ? Who is winning in what market? How much of a threat are they?

11 Environment Scan What territories do they operate in?
How do the workforces differ via location? What are the community relations like? How good is the infrastructure in place? How good are the distribution systems?

12 Legislation/Taxation
How friendly are the governments? What kind of government incentives are in place? How stable is the political system? How favorable is legislation on the industry? What kind of tax rates are in place? What kind of deductions exist?

13 Valuation - Quantitative
Valuation Metrics Income Statement Balance Sheet Cash Flow Statement Growth Rates Risk Analysis Trading Characteristics

14 Valuation Metrics P/E Ratio: The measure of a firm's value relative to its earnings Market Capitalization: The trading value of the company Book Value: The value of a company’s assets (assets - liabilities) Market to Book Ratio: (Market cap / Book Value) Stock Price: Present value of future cash flows

15 Income Statement Snapshot of a company's earnings
Analysis of revenues/expenses/efficiency Net Profit Margin: The percentage of revenue left after all expenses have been deducted from sales (Net income / Revenue) Earnings Per Share (EPS): (Total net income / Common shares) Snapshot of quarter / year growth What is a payout ratio: (DPS/ EPS)

16 Balance Sheet Snap shot of company's assets and liabilities
Current Ratio: (Current Assets / Current Liabilities) Quick Ratio: (Current Assets - Inventory) / Current Liabilities Return On Equity: The amount of net income returned as a percentage of shareholder equity (Earnings / Total Equity) Market to Book Ratio: (Market cap / Book Value)

17 Balance Sheet (continued)
Common shares outstanding-Increasing or Decreasing? Debt- Lots or none? Quality debt or bad debt? Assets- Quality of assets Goodwill: Acquisition Price-fair value=Acquisition premium

18 Cash Flow Statements Most useful statement of all three
Investors/companies need free cash flow to be paid dividends or reinvestment for growth Snapshot of Income, operating, investing, and financing activities Operating: How efficient are operations? How much cash are we generating?

19 Cash Flow (continued) Investing: How much are we investing? How good are we at it? Dividends: How much dividends are we paying? Equity: How much stock are we issuing or buying back? Debt: How much debt are we taking on? What are we using it for? Net cash: Do we have free cash left over? Or are we consistently borrowing or selling equity to sustain the company?

20 Growth Rates Important concept in Finance, always want your money to grow Sales>15 EPS>15 Cash Flow>15 Equity>15 ROIC>15

21 Risk Analysis Standard Deviation: Average measure of volatility
Volatility: Degree of variation in trading price Beta: Risk of security in relation to the market Historical variations in price

22 Trading Charactersitics
Price volatility: Daily movement of price Prince Range: Range of prices security is trading between for a given period of time Volume: Total amount of shares traded for a period of time or day Average volume: Average amount of shares traded in a day

23 Trading Characteristics (continued)
Bid: Highest Price on a market to purchase security Ask: Lowest price on a market to sell a security Spread: Difference between Bid-Ask

24 Putting it all Together
Objective-What was our initial purpose for the analysis? Quantitative-Do the numbers make sense? Qualitative- Does the background check look positive? Calculation- Calculate the expected stock price Thesis- Recommendation of findings Conclusion-Action or implementation of findings

25 Appendix Example Valuation Margin of Safety Sticker Price Actual Price
Thesis Conclusion

26 Value of Company Stock Price= EPS x P/E ratio Ex: Equitable Group
Current Price=$57.50 EPS Growth Rate=20% 5 year EPS estimate=17.9 5 year stock price estimate=$214.8 Discounted to present time=$106.80

27 Sticker Price & Margin of Safety
Sticker Price= Actual Value of Company MOS= Expected Value-current stock price or stock premium represented as a percentage EQB Sticker Price=$106.80 Actual Price= $57.50 EQB MOS= (106.80/57.5)-1= 85% undervalued

28 Thesis Equitable group is a great company with a strong earnings track record and potential for future growth Bull company to hold for long term appreciation Targeted hold rate is 5-10 years with a review every 6 months

29 Conclusion Recommended “Buy” at $57.50-$75 a share
Hold until at least $106.60 Recalculate target price given new time outlook and earnings potential once security reaches price target

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