Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 5th, 2009 1) 2) 3) 4) 5) 6) Size and Composition Economic Analysis Business Analysis Valuation Analysis Financial Analysis Recommendation.
Download ReportTranscript Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 5th, 2009 1) 2) 3) 4) 5) 6) Size and Composition Economic Analysis Business Analysis Valuation Analysis Financial Analysis Recommendation.
Zach Rochon Logan Cotter Adam Claugus Joseph Hsieh May 5th, 2009 1) 2) 3) 4) 5) 6) Size and Composition Economic Analysis Business Analysis Valuation Analysis Financial Analysis Recommendation Coal and Consumer Fuels Oil and Gas ◦ Drilling ◦ Equipment and Services ◦ Exploration and Production ◦ Integrated ◦ Refining/Marketing ◦ Storage S&P 500 Sector Weights Materials 3.37% Cash 0.00% Telecom Svc 3.71% Utilities 3.98% Consumer Discretionary 9.52% Consumer Staples 12.04% Information Technology 18.40% Energy 12.51% Industrials 10.44% Health Care 13.83% Financials 12.19% Sim Portfolio Weights Telecom Svc 2.40% Materials 3.88% Consumer Discretionary 7.93% Utilities 2.50% Cash 3.69% Consumer Staples 13.06% Information Technology 19.92% Energy 11.31% Industrials 9.44% Health Care 17.74% Financials 8.14% 1. Size A. Adjusted market cap of $1,006,613 million B. Composes 12.51% of the S&P500 C. SIM currently underweights by 120 basis points 2. Largest Companies 1. Exxon Mobile($332.30B), PetroChina($180.73B), Royal Dutch Shell($149.17B), BHP Billiton ($141.55B), BP ($139.57B), Chevron($131.86B) 3. Performance 1. YTD: (2.25%) 2. QTD: 11.18% 2) Economic Analysis EUR/USD Energy (Sp-10) prices Correlation=-.888 R² = 0.7902 USD/Euro vs. Crude Oil 2008-Present 160 140 Crude Oil 120 100 80 60 40 20 0 0.6 0.65 0.7 0.75 USD/Euro 0.8 0.85 The Life Cycle The Business Cycle Near-term future of energy markets is tied to the economy’s uncertainty. Restoring credit flow is key to stabilizing demand. Capital intensive nature of energy projects makes access to financing critical. Energy is at the center of a political debate ◦ ◦ ◦ ◦ ◦ Waxman-Markey Bill Cap-and-trade of greenhouse gases Carbon pricing Clean Energy and Energy Efficiency Back by Obama with majority support in the House, Senate is the only hurdle 100.0000 80.0000 60.0000 12/31/2005 40.0000 12/31/2006 12/31/2007 12/31/2008 20.0000 03/31/2009 0.0000 SP-10 -20.0000 -40.0000 OGINT BP COP XOM EBITDA Margin 25.0000 20.0000 15.0000 10.0000 5.0000 0.0000 EBITDA Margin Net Profit Margin Relative to S&P 500 1.6000 1.4000 1.2000 1.0000 0.8000 Net Profit Margin Relative to S&P 500 0.6000 0.4000 0.2000 0.0000 01/01/2004 01/01/2005 01/01/2006 01/01/2007 01/01/2008 03/01/2009 12/01/2008 09/01/2008 06/01/2008 03/01/2008 12/01/2007 09/01/2007 06/01/2007 03/01/2007 12/01/2006 09/01/2006 06/01/2006 03/01/2006 12/01/2005 09/01/2005 06/01/2005 03/01/2005 12/01/2004 09/01/2004 06/01/2004 03/01/2004 Price/Sales 1.6000 1.4000 1.2000 1.0000 0.8000 0.6000 Price/Sales 0.4000 0.2000 0.0000 Cash Flow Per Share 90.0000 80.0000 70.0000 60.0000 50.0000 40.0000 30.0000 20.0000 10.0000 0.0000 Cash Flow Per Share Return on Equity 30.0000 25.0000 20.0000 15.0000 Return on Equity 10.0000 5.0000 0.0000 Energy 0% % from 15 Year Median -10% -20% -30% -40% -50% -60% Energy P/E TTM P/E Fwd P/B P/S P/CF -56% -20% -41% -40% -46% Industry: P/CF COCOF OGDRL OGEQP OGEXP OGINT OGREF OGSTO 0% -10% -20% -30% -40% -39% -40% -50% -56% -60% -70% -80% -73% -43% -54% -58% Industry: P/E Fwd 150% 100% 107% 50% 12% 0% -28% -36% -50% -16% -30% OGREF OGSTO -65% -100% COCOF OGDRL OGEQP OGEXP OGINT COP BP 150% DVN RIG 123% 100% 50% 0% -4% -15% -50% -57% -57% -55% -100% P/E Fwd P/CF -77% -73% Increase 120 basis points to par with S&P500 at 12.51% ◦ The sector is currently undervalued with strong growth potential within our one year horizon Energy’s performance against the S&P500 ◦ QTD:11.18% vs. 6.48% ◦ YTD: (2.25%) vs. (2.49%) We expect this trend to continue and improve longterm Biggest positives ◦ Short-Term: OPEC cutting production ◦ Long-term: U.S. economic recover Biggest risks ◦ Appreciation of USD/Euro ◦ Uncertainty in global economy ◦ Political risk Overweight ◦ Drilling & Services Underweight ◦ Exploration and Production Individual stock recommendation ◦ Transocean (RIG)