1. SIM Sector Presentation: Utilities Sector (S5UTIL)
Jaiwei Hou, Nitish Gupta,
and Veronica Groebner

2. Outline Total Market Cap=5.5 Trillion Overview Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
Total Market Cap=5.5 Trillion

3. Overview

4. Total Utilities Market Size-1.20 Trillion
3rd smallest sector in S&P 500

6. Industries within Sector

9. Business
Analysis

11. External Factors
Weather
Commodity
Regulation
Technology

15. Five Forces Analysis Threat of Substitutes - Low
- utility is necessity
- hard to build private generator
Competitive Rivalry - Low
- most firms have dominated their own region
- only a few firms in one area
Threat of New Entry - Low
- extremely high fixed costs
- upfront investment
Supplier Power - High
- price is volatile and uncontrollable
- suppliers are limited
- price difference among suppliers is small
Buyer Power - Low
- price is set fixed
- inconvenient to switch firms
- must use energy

16. Economic Analysis

17. S5UTIL vs. Inflation
30 years
Correlation: 0.021

18. S5UTIL vs. GDP
30 years
Correlation: 0.080

19. S5UTIL vs. GDP
10 years
Correlation: 0.141

20. S5UTIL vs. Wage Growth
20 years
Correlation: 0.141

21. S5UTIL vs. Wage Growth
10 years
Correlation: 0.091

22. S5UTIL vs. Oil Price
30 years
Correlation:

23. S5UTIL vs. Oil Price
10 years
Correlation: 0.277

24. S5UTIL vs. Unemployment
30 years
Correlation:

25. S5UTIL vs. Unemployment
10 years
Correlation:

26. S5UTIL vs. Federal Funds Rate
20 years
Correlation: 0.083

27. S5UTIL vs. Federal Funds Rate
10 years
Correlation: 0.160

28. increase in gas but decrease in electricity Warm weather
S5UTIL vs. Weather
What About Weather?
Cold weather
increase in gas but decrease in electricity
Warm weather
increase in electricity but decrease in gas
Extreme Disasters
Insurance

29. Financial Analysis

30. Return on Equity:
S5UTIL vs. SPX
Correlation:

31. Sales:
S5UTIL vs. SPX
Correlation: 0.132

32. Price to Cash Flows:
S5UTIL vs. SPX
Correlation: 0.297

33. Price Earnings Ratio:
S5UTIL vs. SPX
Correlation: 0.309

34. Price to Sales: Correlation: 0.316 S5UTIL vs. SPX
19 and 23 switch color of lines
Correlation: 0.316

35. Price to Book:
S5UTIL vs. SPX
Correlation: 0.439

36. Earnings Per Share:
S5UTIL vs. SPX
Correlation: 0.434

37. Gross Margin:
S5UTIL vs. SPX
Correlation: 0.443

38. Price:
S5UTIL vs. SPX
Correlation: 0.503

39. Valuation Analysis

40. Utilities vs S&P 500 As on 12/29/2017 P/E P/B P/S P/CF Utilities S&P
5 year High
18.34
20.09
2.06
3.22
2.21
2.22
8.62
14.23
5 Year Low
14.78
13.96
1.44
2.13
1.33
1.36
6.52
9.34
5 Year Average
17.36
17.13
1.69
2.64
1.70
1.78
7.45
11.85
Current
15.85
17.44
1.68
3.08
1.87
2.09
7.05
12.61

41. Utilities Sector
P/E, P/S, P/B & P/CF

42. Relative Basis S5UTIL vs. SPX Relative to SP500 High Low Median
Current
P/E
1.20
0.80
0.95
0.88
P/B
1.13
0.50
0.76
P/S
0.94
0.54
0.68
P/EBITDA
0.90
0.47
0.61
0.53

43. Electric vs Gas Utilities P/E

44. Performance Comparison

45. Technical Analysis

46. Recommendation

47. HOLD (Underweight Relative to S&P 500)
Interest Rates
Steady Revenue Business Models
Defensive Sector
Currently underweighted at 15 basis points (Maybe we should sell?)
Sell off enough to be 50 basis points underweight at least

48. Questions?