ATIS Market Roundup - Issue 4

ATIS Market Roundup: Issue 4
(28/11/14)

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Welcome to the fourth issue of the ATIS Market Roundup Newsletter.
Yet another busy fortnight for ATIS. SIM Challenge was hosted for a week in which the ATIS team came second,
(unfortunately), Lloyds held a presentation, we visited the PwC Office in Birmingham for an insight, there was a
Presentation and Pitching workshop the day after PwC, and then the day after that a Business Plan workshop. The
following week HSBC held a penultimate year and final year presentation, there was a networking event with Fidelity,
Deutsche Bank, and Morgan Stanley on the Wednesday, and the day after ATIS were invited to pizza at the Grant
Thornton office!
The next main event coming up will be huge. We call it Speed-Networking: speed-dating, but networking. How it
works is every student spend 3 minutes with every representative from every company, and you will essentially sell
yourself to the company in an elevator style pitch, with everyone bringing their CV. We had this event last year, and
there were 8 job offers on the spot, so we are delighted to host this event again. There are limited spaces available,
so if you would like to reserve your spot email one of the committee asking to attend: we will screen all applicants
and reply to those successful. If you are successful you must attend.
Companies attending Speed-Networking include
Accenture, PwC, HSBC, Lloyds, Barclays, Oxygen Accelerator, Base Group, Grant Thornton, and many more
The coming events include:
• Lloyds Banking group drop in: Tuesday 2 December, 11-3pm, Main Building foyer.
• Grant Thornton, day in the life of an auditor: Wednesday 4 December, 3-5pm, MB108.
(Auditing is a great stepping stone to get into corporate finance as it provides fantastic groundwork of knowing
business books, so do not dismiss this event!)
• Speed-Networking: Thursday 11 December
This should be a superb event, so we do encourage you to email one of the committee asking to be put on the
screening list
Oliver Ward
Oliver Ward
President,
is a second year BSc Business & Management
student, focusing on Economics & Analytics for
year 2. Along with being President of ATIS, he is
a Director of the World’s largest University based
consultancy, and the General Secretary of the
Aston University Badminton Team, along with
being a very keen badminton player himself. His
strengths lie very much in sales, strategy, and
growth, and he wishes to pursue this as a
career path.
Joel Ntamirira
Trading Officer,
is a second year student studying BSc Honours
Finance. As well as being Trading Officer with
the Aston Trading and Investment Society, Joel
is Utilities and Healthcare Portfolio Manager with
Aston Capital. His equity investment philosophy
is concentrated, research driven, focused on
value and growth ideas. He wishes to pursue a
career in equity research & investment
management.
Contents
3,4 Mexico
Poised for growth
5,6 Black Friday
What is the real significance?
7,8 Oil
WTI Crude falls to $70 for first time since June
2010
9,10 Bill Ackman
Heads I win, Tails you lose
11,14 Apple
First member of the $700bn club
15,16 Q&A with J.P.Morgan
The head of EMEA Graduate Recruitment talked to
our silver sponsors
Sharandas Thampi
Contributing Writer,
is an MSc Business and Management student at
Aston Business School, with a keen interest in
the Investment Management and Strategy
Consulting industries. He holds an
undergraduate first class honours degree in
engineering and has 2 years of part-time and full
time entrepreneurial leadership and
management experience, leading a start-up
team of engineers in the internet industry in
India. His interests include financial markets/
trading, business analysis and technology.
1 2

Mexico
Mexico is the second largest Latin American country and the most populous
Spanish-speaking country in the world. Economically, the North American
republic has faced difficult times due to a shrinking of industrial output, social
unrest and a lack of productive investment. On Friday, 21st November 2014,
third quarter results from the Mexican economy did not live up to analyst
expectations and the Mexican government has cut its growth outlook for the
year to between 2.1% to 2.6% from its earlier forecast of 2.7%, the second
downgrade this year.
In spite of the negativity, why are some analysts optimistic about
Mexico?
Two rounds of recent constitutional legislation were made by the Mexican
government, both of which, in combination, have the potential to unlock the
Mexican economy in the way that India’s economy was opened up through
large scale liberalisation and privatisation in 1991.
The first round of reforms, made by the Mexican government, changes the
landscape of competition in the economy along with providing growth
opportunities to the telecomm and energy sectors in particular. Competition
has been enhanced through the delivery of anti-monopolistic policies that, for
example, caused Mexico’s largest telecomm firm América Móvil owned by
multi-billionaire Carlos Slim to divest its assets. Mexico’s state run oil firm
Pemex has a history of poor management and productivity due to a lack of
investment. On the back of the shale oil boom in the neighbouring USA,
Congress legislation in Mexico recently allowed for Foreign Direct Investment
(FDI) in the nation’s deepwater and shale fields, thus providing growth
opportunities to the energy sector as a whole. Liberalisation of the electricity
industry is also on the agenda.
Credit for these internal successes are due in large part to the political stability
that has been the result of a majority in Congress for the current Enrique Peña
Nieto administration, thus reducing the obstacles involved in passing
legislation. Partisan politics have also seen a decline in recent times with broad
political co-operation at the highest levels in pushing reforms.
Another external macro-economic development that provides potential
momentum to the Mexican growth story is its close trade ties with the USA.
With the recent upswing in the American economy, there is potential for
increased export revenues for the Mexican economy.
Below is a pie-chart that shows Mexico’s exports to various countries. The
chart depicts the high dependence of Mexico on the USA as an export market.
The yield on 30 year (long-term) bonds issued by the Mexican government has
consistently moved downwards in the period from 2001-2013, especially in the
periods of 2011-12 and 2012-13 when the new Enrique Peña Nieto
administration took over the political mantle. This is shown in the figure below:
This shows a positive outlook for growth in the long term for Mexico, assuming
that the momentum of the recent reforms can be continued in the future.
3 4

Black Friday
28th November, the day after Thanksgiving, is the busiest shopping day of
the year. Commonly known as ‘Black Friday’, the day marks the beginning
of the winter holiday season with retailers attempting to outdo each other
to provide massive savings deals for consumers.
What is the real significance of Black Friday for the retail industry and for
the consumers?
The winter holiday season is responsible for 20-40% of retailer revenues on
average, thus making it the most critical part of the year. Black Friday acts
as a tool for retailers to maximise sales by getting large numbers of
consumers to congregate and make purchases in a small window of time
(i.e 1 day). The statistics prove the success of Back Friday as marketing
tool for the retail industry. In 2013, approximately 92 million people
shopped on Black Friday alone, with total spending estimated at upwards
of $57 billion.
Retailers, both online and brick-and-mortar slash prices on items in
demand for a limited period of time, thus drawing a large number of
consumers to their respective stores. The graph below shows the decrease
in prices for certain products at John Lewis and Boots for Black Friday in
2013:
The origin of the word ‘Black Friday’ is debatable. The majority believes that it signifies the day on
which the profits of most retailers move into the black (i.e they become profitable). Another theory
is that the term originated in the United States due to the excessive levels of chaotic vehicular and
pedestrian traffic on the day.
Whatever the origin of the term might be, retailers seem to be making the most of the shopping
craze and delirious consumers seem to be playing right into their hands. Whether the increase in
sales would have an effect on the share price of retail stocks is also debatable. The spending, and
hence sales, is expected to increase for Black Friday 2014 due to higher levels of disposable
income through the recovery in the UK. This does not necessarily mean that profits/earnings
would go up since increases in quantities of product transacted are compensated by decreases in
price of the product.
The 5-year share price movement of Marks and Spencer, as shown below, seems to show a
correlation with the Black Friday rise in sales through the spikes in the share price in the
November period of 2010, 2012, 2013 and 2014.
In order to turn the marketing screw even further, Black Friday has been expanded to its online
version for e-retailers Cyber Monday, the Monday after Thanksgiving. Cyber Monday has in recent
years shown even greater sales than Black Friday. Given below are the deals provided on Black
Friday by the U.K’s biggest retailers.
Amazon Black Friday page
Argos Black Friday page
Very Black Friday Page
Currys Black Friday page
John Lewis Black Friday page
5 6

Oil Price Slump Continues
Brent crude fell to the lowest in four and a half years yesterday at $70, and
WTI at $65 when OPEC announced that they wouldn’t curb production levels
to support oil prices. The Organisation of Petroleum Exporting Countries met
in Vienna, with members of the group deciding to keep production levels the
same. Weeks before the meeting, there was speculation that they would
decide to cut production to support oil prices. If approved, this would have
been the first production cut since 2008.
The chart below shows the dip in prices (WTI) when OPEC announced they
plan to stick to production targets.
The 12 member cartel plan to keep producing 30 million barrels a day;
analysts say a cut of 1.5 million barrels a day would support oil prices. The
lack of action is bad news for Nigeria, Russia and Venezuela who need $90/
barrel oil to meet their economic targets. Over half of the Russian Government
revenues come from oil and gas; low prices are putting additional pressure on
the economy.
However; worse off are American shale oil producers, where the extraction
cost per barrel is much higher; at $50 - $100 per barrel, compared to $10 -
$25 per barrel via traditional methods. Lower oil prices could also halt the
shale oil boom in USA. Analysts predict that 40% of forecasts for 2015 would
be uneconomic if prices stay below $80 per barrel. When US players liquidate
and US production is smaller and more concentrated; the price of oil should
then pick back up; only the cheapest producers will survive. Hedged contracts
at $90/barrel are keeping many US oil firms in production; when they expire, it
will be much more difficult for many to stay afloat.
To view the OPEC press release click: HERE
Banks including Barclays and Wells Fargo are facing potentially heavy losses on an
$850m loan made to two oil and gas companies, in a sign of how the dramatic slide in
the price of oil is beginning to reverberate through the wider economy. Rival bankers
estimate that if Barclays and Wells attempted to rectify the $850m loan now, it could
go for as little as 60 cents to the dollar. The 30% drop in price since June has
impacted on currencies, national budgets, and shares of energy companies shares.
Although it is notorious prices of oil do not fully translate into savings for a consumer
due to sellers of oil wanting a higher profit, the fall in price has been noticeable, which
might possibly be one of the reasons USA grew 0.4% higher than expected, to 3.8%
in Q3. The impact has not been limited to OPEC countries such as Saudi Arabia & the
US though: Euro inflation slowed to 0.3% as the ECB is poised to discuss stimulus for
the Eurozone.
The price slide is having a serious impact on oil producers that rely on revenues from
crude exports to balance their budgets. The Russian rouble has lost 27% of its value
since mid-June, when crude began to fall, while on Wednesday the Nigerian naira
touched a record low. The US dollar strengthened to a 5 year high: it climbed 0.8 % to
118.63 yen after advancing to 118.98 on Nov. 20, the strongest level since August
2007. It added 0.1% to $1.2452 per euro, with the yen depreciating to 0.7% to
147.72 per euro.
How will the producers and oil react?
Investors are concerned that companies such as Royal Dutch Shell (RDSA) and BP
(BP) won’t have enough cash to cover both investment plans and dividends.
Breakeven costs vary from $40 - $100 a barrel, so profit margins are currently being
squeezed. In the long run the greater dilemma for oil producers are that the costs of
developing new reserves remain higher than ever. An extended period of lower prices
will prevent companies such as RDSA and BP from being able to replace production
as existing oil fields begin to dry up.
7 8

Bill Ackman
Pershing Square - Heads I win, Tails you lose.
Activist hedge fund manager Bill Ackman and his team at
Pershing Square Capital Management have pulled off one of the
smartest investment plays of the year. Making his investors a
staggering $2.2 billion in a day.
How did he pull it off?
Firstly, Pershing Square Capital Management and
pharmaceutical giant Valeant colluded to force a hostile takeover
of botox maker Allergan. Pershing Square then very sneakily
built up their stake through options; avoiding all the radars and
checkpoints that would require disclosure of holdings at certain
thresholds to the US Federal Trade Commission and avoids
alerting the company. Bill Ackman then spent months trying to
convince Allergan shareholders that Valeant was unlike any
other pharmaceutical firms and CEO Michael Pearson was a
particularly excellent CEO, branding him part of William
Thorndike’s ‘Outsider CEOs’ group.
Allergan has been running away from the deal since April,
making merger prospects extremely difficult and time
consuming. The company has very strict rules on shareholder
called meetings in a bid to suppress and fatigue shareholder
action. The firm began fighting back by questioning Valeant’s
business model and accounting practices in an attempt to
diminish any attraction to Valeant's stock; which was to make
up a large component of the deal. Allergan’s board also refused
to negotiate the terms of the deal with Valeant, and refused to
meet with Allergan’s largest shareholder; Pershing Square,
without the management present.
In that period, Pershing Square didn't own any shares in
Valeant, but a 9.7% stake in Allergan. Pershing Square finally
managed to get an special meeting in a bid to change the board
of directors and fix the by-laws prohibiting and slowing progress
on the proposed deal by Valeant.
On November 17th, global pharmaceutical firm Actavis, and
Allergan agreed on a $219 per share, $66 billion deal; 20% over
the highest price offered by Valeant. Pershing Square didn't
succeed in convincing Allergan to accept Valeant’s $53 billion
offer, however Actavis, as the white knight in this corporate
battle, has made Pershing Square’s efforts ultimately successful.
This makes for a fantastic payday for Bill Ackman and his
investors; his 29 million share stake was purchased at $3.7
billion and is now worth $6.32 billion. $344 million has been
shared with Valeant consistent with the join venture agreement
shared by the two firms; making a healthy gain for Mr. Ackman
and his investors.
There are still questions about the legality of this deal. Bill
Ackman knew about Valeant’s ambitions to merge with Allergen
prior to acquiring his 9.7% stake in Allergan earlier in the year.
This is material information that was available to Bill Ackman and
could be a violation of insider trading laws; there is currently an
investigation by the SEC. Pershing Square made $1 billion from
the day they purchased the shares, to the day the deal was
made public. Mr. Ackman claims he acted as a co-buyer and
welcomes the SEC investigation. If the SEC finds that Pershing
Square did violate insider trading laws, the penalty is as much
as three times the firm’s gain on the deal.
For more information about the potential legal implications of the
deal click: HERE
As much as Ackman tried to convince the public and Allergan
shareholders that the gem in the transaction would be shares in
Valeant; going as far as announcing he is willing to take no cash
in the offering for his stake in Allergan and only Valeant stock.
The diamond has always been Allergan. The botox maker is
now merged with Actavis and collectively expected to make $23
billion in revenues in 2015. As mentioned above, Mr. Ackman
has done very well as a result of this deal, Valeant on the other
hand? Not so well. Mr. Pearson has plans to make Valeant a
$150 billion pharmaceutical company by 2016 and has been
making acquisitions (some questionable) in a bid to be a top 5
pharmaceutical company. Many predict their plan B deal is to
acquire animals healthcare company Zoetis; which was spun off
by Pfizer in 2013 and has a market cap of $22 billion. Ohhh, and
guess who just bought a 10% stake in Zoetis? Pershing
Square Capital Management.
Another big payday for Ackman in the near future?
9 10

Apple
Lonely in the $700bn club
Apple (AAPL) is the first company in history to top $700 billion in market capitalisation. The worlds most valuable company
continues to make new highs; so, how can Apple (AAPL) be worth $700 billion? Under what basis? Does this signal a peak in the
share price of the Cupertino based technology company? Or is there still more wealth to be gained by apple shareholders?
Performance is key at Wall Street; better yet, Cash is KING
Apple’s has been, and continues to be a strong performer in the technology industry. iPhone demand remains strong and Average
Selling Price (ASP) is expected to rise as the iPhone 6 plus is increasingly sought after by consumers. Apple achieved 6.95%
revenue growth in FY’14, over $182 billion in revenues and over $39 billion in net income. Apple is a cash machine; currently sitting
on $155 billion in cash, cash equivalents & marketable securities, which is the largest hoard by any company today. $137 billion of
the cash and cash equivalents is held in overseas subsidiaries; to further reducing tax liability as these funds are not subject to US
taxation unless repatriated. Cash generated from operating activities last fiscal year was a whopping $59.7 billion.
Apple has created a lot of wealth for shareholders. Below shows the gain that could have been realised if you invested $100 in
Apple in September 2009 and how that compares to investing $100 in the S&P 500 Index, Dow Jones U.S Technology Supersector
Index and S&P Information Technology Index; Apple shares have returned around twice it’s benchmarks since 2009.
11 12

Not expensive relative to competition
Below is a table by Healthy Appreciation from Seeking Alpha which shows how Apple
compares in terms of valuation against close peers; who deal in both hardware and
software, all pay dividends and have all been around for some time.
As shown above; particularly highlighted by the PEG figure, based on the growth
estimates, Apple is valued less favourably by the market than its competitors. If you
account for cash holdings; Apple’s Forward P/E adjusted for net cash brings Apple’s
valuation to 12.77x. This figure is based on consensus forecasts on Yahoo Finance; Carl
Icahn views Apple trading for 8x FY’15E P/E, based on his own forecasts.
Company Fwd. P/E adjusted for net cash
Apple (AAPL) 12.77
Microsoft (MSFT) 14.3
HP (HPQ) 10.47
Oracle (ORCL) 12.5
Continued iPhone unit sales growth
iPhones represent the largest portion of Apple’s revenues and unit sales. Nearly 170
million iPhones sold in the last fiscal year; representing 56% of total revenues. Analysts
estimate vary, but based on the strongest iPhone launch ever this year, iPhone net sales
is expected to rise by 30%; which is based on 22% unit growth and 7% price growth.
iPhone sales grew 12% last year and strong sales in iPhones are integral if Apple is to
continue to gain in market cap.
Pressure from the street
Apple has received increasing pressure from Wall Street to return some of its cash hoard to
shareholders; Carl Icahn has openly called for Apple to pursue a tender offer of $133 billion;
which has come down from the $150 billion he initially requested for, suggesting Apple should
borrow money at cheap rates to fund a buyback programme. Apple hasn’t quite pursued Icahn’s
strategy, but the company is increasingly shareholder friendly and has put in plan a total of $130
billion in a shareholder return programme, which includes dividends and share repurchases; with
$94 billion already been spent. Carl Icahn has written an open letter; predicting $203 per share.
Although theoretically possible, at that point (assuming today’s share count), Apple would be
worth more than 6.6% of all USA listed companies combined.
Innovation
The company continues to innovate; Apple Watch and Apple Pay are to add significantly to
revenues in future. Although neither particularly revolutionary; we have seen the Moto 360 smart-watch
and the Samsung Galaxy Gear watch prior to the announcement of Apple’s alternative,
and Google Wallet was released prior to Apple Pay. But Apple’s implementation (working with
major credit cards and banks), and communication about their latest developments is far
superior to Samsung, Motorola’s and Google’s effort, and we are likely to see more consumers
use such services as a result.
Conclusion
History doesn't bode well for a hardware only company; 90% of Apple’s revenues come from
hardware, although to the company’s advantage; it continues to innovate and diversify revenue
streams and ultimately, consumers currently still love their products. Based on comparable
companies, the valuation seems justified. The following quarterly results will be particularly
important; Apple guidance is for $63.5 to $66.5 in Q1 revenues. From a macro perspective;
consumers should have more disposable income because of the fall in oil prices which should
benefit the company, but the strength in the dollar will adversely affect overseas earnings. All in
all; Apple is currently in a very strong position this holiday season.
For the full annual report click: HERE
For Healthy Appreciation’s thoughts on Apple’s valuation click: HERE
For Carl Icahn’s open letter click: HERE
13 14

J.P.Morgan Q&A
Our Silver Sponsors, Grad Diary, managed to talk to the Head of
EMEA Graduate Recruitment at J.P Morgan, Belina Mann
Q: What do you believe makes J.P Morgan unique from other investment banks?
A: I’ve only worked at J.P Morgan so I can talk about why I’ve spent 13 years here and
why I think it’s a great place to have a career.
Firstly, there is such a breadth of different opportunities, from the Investment Banking
divisions to Private Wealth, Treasury and Asset Management roles. There is also great
support for mobility across the firm which can really give you a varied career – this is
probably why I’ve been here for 13 years!
Secondly, there is a fantastic culture within the organisation; you work alongside hard
working intelligent people who support each other. The people I work with really make
all the difference.
Q: What mistakes do you often see in applications?
A: The one thing that really stands out is when a candidate has clearly copied and
pasted an answer from another application to save time. It is something that can be
spotted quite easily by a recruiter and is disappointing as we really want to see
students tailor their application to J.P. Morgan. Students also need to remember to
use the full word count, structure their answers, and remember to include a variety of
experiences from their CV.
Q: What would you like to see in a CV from candidates?
A: When we are looking through applications the key things we want to see are the
motivation, hunger and drive to succeed. We also look for solid academic performance
and participation in extra curricular activities. This can be anything from being part of a
sports team to society membership; any positions of leadership within these activities
should also be highlighted.
Q: What are some of the key competencies you look for in an applicant?
A: As recruiters we understand that students won’t necessarily be the finished articles
and that’s why we like to see a candidate who is willing and keen to learn. We also
look for those who are analytical, innovative and good communicators.
Q: What sort of work experience do you prefer to see on a CV?
A: If you have experience on any insight programmes (such as our Spring Week
programmes), or other internships, then they are a must to include as it demonstrates
directly relevant experience. However, we also look for other work experience that has
helped you to develop what we call ‘transferrable skills’. These are skills that you have
picked up whilst working elsewhere that will be useful in the role that you are applying
for. These can be from any type of work experience.
Q: Do you believe there are any misconceptions that students might have about the
banking industry?
A: I think the biggest misconception I find students have is that they believe investment
banking is only a career path for those studying specific degree subject areas. Many
assume that if they don’t have a background in Economics, Mathematics or Finance
then they won’t be able to get a job in the investment banking industry. This is not the
case – we actively recruit from other degree disciplines such as Science, Engineering,
Humanities, Arts etc as students studying these courses have different skills which are
highly sought after.
Q: What sort of hours do people generally work within the Investment Banking
industry?
A: It can vary greatly from division to division. People who work at J.P Morgan do work
hard but more importantly they are encouraged to work smart. The company invests a
lot in technology and systems that can help employees work efficiently.
Personally what I have found great about J.P Morgan is the flexibility they offer and how
they allow you to work around commitments in your personal life.
Q: What do you believe the biggest challenge is moving from university life to a role
at J.P Morgan?
A: I think it’s the same challenge faced by anyone leaving university to work in the
corporate world – adjusting to a new lifestyle and regime. Adapting to waking up earlier
and having a much more structured day is probably the biggest challenge you will face
coming from university when your schedule is a lot more relaxed!
Q: What do you believe a career path in Investment Banking offers you for those
who are still considering their options?
A: If you are someone who likes a challenge and innovation then it is definitely a great
career path. The industry is fast-moving and dynamic with so many different types of
interesting roles.
Q: What opportunities are available beyond graduate jobs that students can look to
apply to?
A: J.P Morgan offers opportunities for both first and second year university students.
For those in their first year there are insight programmes that give students a taste of
the industry and the wide range of opportunities available including in Technology. We
also offer internships in a variety of different areas and divisions for those students in
their penultimate and final year of study. These opportunities are offered, not just across
the investment bank, but also across our Asset Management and Private Banking
divisions.
We have programmes and internships outside of London in our Bournemouth and
Glasgow offices, a Schools Program for A-level students and, Apprenticeship and
Work Experience programmes available in Bournemouth. There are so many
opportunities for students at all levels to experience working at J.P. Morgan.
15 All credit goes to our silver sponsors Grad Diary (http://www.graddiary.com/interview-tips/why-choose-a-graduate-career-in-investment-banking/) 16

There is a huge difference in mindset between someone who has a lot going on, and someone who has a lot to do
To contact the editors responsible for the ATIS Market Roundup:
Oliver Ward wardos@aston.ac.uk
Joel Ntamirira ntamirjl@aston.ac.uk
Sharan Thampi sharanthampi@gmail.com

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