Financials.ppt

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Financials.ppt

  1. 1. Financials Sector Stock Presentation -John Reik- -Jeff Liu-
  2. 2. Sector Recommendations <ul><li>Increase SIM portfolio’s financial sector weight by 147 basis points to bring in line with S&P 500 </li></ul><ul><li>Look for opportunities in P&C insurance companies, asset managers, brokers, investment bankers, and exchanges </li></ul><ul><li>Exercise caution with banks, real estate, and credit card companies </li></ul>
  3. 3. Stock Recommendations <ul><li>Sell Mastercard (MA) </li></ul><ul><ul><li>[409 basis points] </li></ul></ul><ul><li>Sell Biomed Realty Trust (BMR) </li></ul><ul><ul><li>[377 basis points] </li></ul></ul><ul><li>Buy Goldman Sachs Group (GS) </li></ul><ul><ul><li>[433 basis points] </li></ul></ul><ul><li>Buy Reinsurance Group of America (RGA) </li></ul><ul><ul><li>[500 basis points] </li></ul></ul>
  4. 4. Current SIM Holdings vs. Proposed SIM Holdings Current: Proposed: 20.71% 22.18%
  5. 5. Mastercard (MA) <ul><li>Business Analysis </li></ul><ul><ul><li>Risks: </li></ul></ul><ul><ul><ul><li>Increased competition </li></ul></ul></ul><ul><ul><ul><ul><li>Visa & Discover IPOs </li></ul></ul></ul></ul><ul><ul><ul><li>Legal & Regulatory Issues ($1b or $7/share) </li></ul></ul></ul><ul><ul><ul><li>Slowing revenue, earnings, and operating margin growth rates </li></ul></ul></ul><ul><ul><li>Opportunities: </li></ul></ul><ul><ul><ul><li>Expansion in overseas markets </li></ul></ul></ul><ul><ul><ul><li>New initiatives (e.g. PayPass) </li></ul></ul></ul><ul><ul><ul><li>Increased use of non-cash transactions </li></ul></ul></ul>
  6. 6. Mastercard (MA) <ul><li>Financial Analysis: </li></ul><ul><li>MA’s effectiveness ratios are below average </li></ul><ul><ul><li>MA seems to be valued too high on a P/E, P/S, and PEG basis </li></ul></ul>
  7. 7. Mastercard (MA) <ul><li>Valuation: </li></ul><ul><ul><li>Current Stock Price: $104.06 </li></ul></ul><ul><ul><li>DCF Target Price: $101.07 </li></ul></ul><ul><ul><ul><li>Potential downside: 2.9% </li></ul></ul></ul><ul><ul><li>Absolute: </li></ul></ul><ul><ul><ul><li>Near all time highs in P/E and P/B </li></ul></ul></ul><ul><ul><li>Relative to S&P 500: </li></ul></ul><ul><ul><ul><li>expensive </li></ul></ul></ul><ul><ul><li>Relative to AXP: </li></ul></ul><ul><ul><ul><li>Expensive (based on P/E) </li></ul></ul></ul>
  8. 8. Goldman Sachs (GS) <ul><li>Business Analysis </li></ul><ul><ul><li>Investment banking segment: Booming market for equity IPOs, M&As, share buybacks, etc. </li></ul></ul><ul><ul><li>High investor confidence equates to high inflows for asset management and brokerage services </li></ul></ul><ul><li>Risks: </li></ul><ul><ul><li>Decrease in business/consumer confidence </li></ul></ul><ul><ul><ul><li>Less investment banking/trading activity </li></ul></ul></ul><ul><ul><li>Increasing interest rates or widening of credit spreads </li></ul></ul>
  9. 9. Goldman Sachs (GS) <ul><li>Financial Analysis </li></ul><ul><li>GS seems to be outperforming its competitors </li></ul><ul><ul><li>However, the stock is still cheap on a P/E, PEG, and P/S basis </li></ul></ul>
  10. 10. Goldman Sachs (GS) <ul><li>Valuation: </li></ul><ul><ul><li>Current Price: $214.00 </li></ul></ul><ul><ul><li>DCF Target Price: $269.12 </li></ul></ul><ul><ul><ul><li>25.8% potential upside </li></ul></ul></ul><ul><ul><li>Absolute: </li></ul></ul><ul><ul><ul><li>P/B ratio near 5-year HI </li></ul></ul></ul><ul><ul><ul><li>P/E ratio about average </li></ul></ul></ul><ul><ul><li>Relative to S&P: </li></ul></ul><ul><ul><ul><li>cheap on a P/E basis </li></ul></ul></ul><ul><ul><ul><li>In-line on a P/B basis </li></ul></ul></ul><ul><ul><li>Relative to Industry: </li></ul></ul><ul><ul><ul><li>Cheap on a P/E basis </li></ul></ul></ul><ul><ul><ul><li>Expensive on P/B basis </li></ul></ul></ul>
  11. 11. Biomed Realty Trust (BMR) <ul><li>Business Analysis </li></ul><ul><ul><li>Major revenue drivers: </li></ul></ul><ul><ul><ul><li>The mortgage rate, affects both company’s financial cost and customer demand. </li></ul></ul></ul><ul><ul><ul><li>Over all economy--GDP ( on a lag basis ); employment numbers, and the well-being of biotechnology and pharmaceutical companies. </li></ul></ul></ul><ul><ul><ul><li>The prices of utility, taxes and insurance are crucial to the companies’ operating expenses. </li></ul></ul></ul><ul><ul><li>Potential risks: </li></ul></ul><ul><ul><ul><li>The rate hiked by FED to 5.25% over the past year will take full effect on the real estate market in 2007. </li></ul></ul></ul><ul><ul><ul><li>The severe correction of the current over-valued real estate industry as a whole </li></ul></ul></ul><ul><ul><ul><li>Tenants in the life science industry face high levels of regulation, expense and uncertainty </li></ul></ul></ul><ul><ul><ul><li>specific improvements required for our life science tenants </li></ul></ul></ul><ul><ul><ul><li>The geographic concentration of our properties in Boston and California </li></ul></ul></ul><ul><ul><ul><li>limited operating history as a REIT and as a public company </li></ul></ul></ul>
  12. 12. Biomed Realty Trust (BMR) <ul><li>Financial Analysis: </li></ul>
  13. 13. Biomed Realty Trust (BMR) <ul><li>Valuation: </li></ul><ul><ul><li>Current Price: $29.70 </li></ul></ul><ul><ul><li>DCF Target Price: $31.08 </li></ul></ul><ul><ul><ul><li>Potential upside 4.6% </li></ul></ul></ul><ul><ul><li>Absolute: </li></ul></ul><ul><ul><ul><li>About average in P/E and P/B </li></ul></ul></ul><ul><ul><li>Relative to S&P: </li></ul></ul><ul><ul><ul><li>About average in P/E and P/B </li></ul></ul></ul><ul><ul><li>Relative to Sector: </li></ul></ul><ul><ul><ul><li>A little below average in P/E and P/B </li></ul></ul></ul>
  14. 14. Biomed Realty Trust (BMR)
  15. 15. Reinsurance Group of America (RGA) <ul><li>Business Analysis </li></ul><ul><ul><li>Major revenue drivers: </li></ul></ul><ul><ul><ul><li>The increasing life and retirement product need for baby boomers. </li></ul></ul></ul><ul><ul><ul><li>The Company has arms-length direct policies and reinsurance agreements with MetLife and certain of its subsidiaries. Consolidation and Reorganization: the coinsurance agreement with Allianz Life provided $278.0 billion in reinsurance in force </li></ul></ul></ul><ul><ul><ul><li>Growing market potential in Asia. (Percentage of company revenue 8.1% (02),9.8% (03),11.9% (04). 13% (05) </li></ul></ul></ul><ul><ul><li>Potential risks: </li></ul></ul><ul><ul><ul><li>Adverse changes in mortality, morbidity or claims experience </li></ul></ul></ul><ul><ul><ul><li>Inflation & Interest Rate Risk </li></ul></ul></ul><ul><ul><ul><li>General economic conditions affecting the demand for insurance and reinsurance </li></ul></ul></ul><ul><ul><ul><li>Exchange rates fluctuations </li></ul></ul></ul><ul><ul><ul><li>Changes in laws, regulations, and accounting standards applicable </li></ul></ul></ul><ul><ul><ul><li>Risks inherent in risk management and investment strategy </li></ul></ul></ul>
  16. 16. Reinsurance Group of America (RGA) <ul><li>Financial Analysis: </li></ul>
  17. 17. Reinsurance Group of America (RGA) <ul><li>Valuation </li></ul><ul><ul><li>Current Price: $58.87 </li></ul></ul><ul><ul><li>DCF Target Price: $77.82 </li></ul></ul><ul><ul><ul><li>Potential upside 32.2% </li></ul></ul></ul><ul><ul><li>Absolute: </li></ul></ul><ul><ul><ul><li>About average in P/E and P/B </li></ul></ul></ul><ul><ul><li>Relative to S&P: </li></ul></ul><ul><ul><ul><li>A little above average in P/E and P/B </li></ul></ul></ul><ul><ul><li>Relative to Industry: </li></ul></ul><ul><ul><ul><li>Below average in P/E and P/B </li></ul></ul></ul>
  18. 18. Reinsurance Group of America (RGA)
  19. 19. Technical Analysis
  20. 20. Review of Recommendations <ul><li>Increase SIM portfolio’s exposure to financial sector by 147 basis points </li></ul><ul><li>Sell Mastercard (MA) [409bps] and Biomed Realty Trust (BMR) [377bps] </li></ul><ul><li>Buy Goldman Sachs (GS) [433bps] and Reinsurance Group of America (RGA) [500bps] </li></ul>

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