The Investment Outlook and Attractive Stocks

Transcription

1 October 29, 2013 Invest For Kids The Investment Outlook and Attractive Stocks Presentation by Omega Advisors, Inc. Leon G. Cooperman Chairman and CEO Investment Manager Omega Advisors, Inc. Wall Street Plaza 88 Pine Street, 31st Floor New York, NY (212) General Partner Omega Associates, L.L.C. Wall Street Plaza 88 Pine Street, 31st Floor New York, NY (212) PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR THIS POOL.

2 Exhibit 1 U. S. Economic Environment Q4 to Q E 2014E Real GDP (%) Real Consumer Spending (%) Real Business Equipment (%) Real Residential Investment (%) Core PCE Inflation (%) Unemployment Rate (%) 8.5 (a) 7.8 (a) 7.1 (a) 6.9 (a) Federal Funds Target (%) (a) (a) (a) (a) S&P 500 Operating Earnings (yoy %) S&P 500 Operating EPS ($) (a) Year-end actual/forecasts Source: BEA, M acroeconomic Advisors, and Omega Advisors, Inc. OMEGA ADVISORS, INC. 2

3 Exhibit 2 S&P 500 P/E and Inflation(a) CPI (Y/Y% change) P/E Ratio <1% 15.8X 1% to 3% % to 5% % to 7% 12.8 y g >7% 8.7 of 6.67% Average (1960 to 2011) 14.9X S&P 500(b) 15.7X In this same period, 10-year U.S. Government Bond yielded an average (a) S&P 500 P/E on 12-month forward operating earnings (b) As of October 22, month forward operating earnings of $111.6 Source: BLS, Standard & Poor's, Thomson Financial, and Omega Advisors, Inc. OMEGA ADVISORS, INC. 3

4 Exhibit 3 S&P 500 PE Expansion Monthly Data from 12/10 to 10/8/2013 S&P 500 P/E on 12-month Forward Operating EPS Source: Standard & Poor's, Thomson Reuters, and Omega Advisors, Inc. OMEGA ADVISORS, INC. 4

5 30 Exhibit 4 Average Yield of High Yield Corporate Bonds '06 '07 '08 '09 '10 '11 '12 '13 Weekly data from 01-Jul-05 to 18-Oct-13 High yield corporate bonds in FINRA-Bloomberg Index - Average yield w eighted by par amount (%) Source: Bloomberg, Financial Industry Regulatory Authority and Omega Advisors, Inc. S&P 500 P/E 11/08 = 900/65 = 13.9x 2/09 = 800/62 = 12.9x Current = 1745/ = 16.1x1 = 1745/ = 15.4x 0 OMEGA ADVISORS, INC. 5

6 Exhibit 5 S&P 500 Companies Excluding Financials Dividend Yield Higher Than 10-Yr T-Note Yield % of Companies % of Companies 2013 (a) (a) As of October 4, 2013 Source: Standard and Poor's, FactSet, Bloomberg, and Omega Advisors, Inc. OMEGA ADVISORS, INC. 6

7 Exhibit 6 Nominal GDP Growth and 10-Year Treasury Yield '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Quarterly GDP data from Q4-83 to Q2-13, monthly Treasury data from Oct-83 to Sep-13 Nominal GDP (yoy%, saar) Nominal yield on U.S. Treasury bonds with constant maturity, 10-year (%) Source: Federal Reserve, Bureau of Economic Analysis and Omega Advisors OMEGA ADVISORS, INC. 7

8 Exhibit 7 Bonds: Unattractive Total Return Avg. Annual Return 2.60% 4% (1)% 0.2% 260% 2.60% 5% (5)% (2.0)% 2.60% 6% (11)% (3.8)% Source: Omega Advisors, Inc. OMEGA ADVISORS, INC. 8

9 Exhibit 8 Financial Characteristics of the S&P 500 S&P 500 (a) Earnings Growth Rate (b) 5.0% Dividend Yield (c) 2.1% Price to Book (d) 2.5X LT Debt /Capital (e) 35.1% Return on Equity (f) 15.4% P/E Ratio (g) 15.1X (a) As of September 30, 2013 (b) Next 3-5 years operating earnings growth rate (c) Latest 4Q trailing dividend as a % of S&P 500 index (d) S&P 500 index divdided by latest book equity (e) Long-term debt as a % of total capital (f) Latest 4Q trailing operating earnings as a % of latest book equity (g) S&P 500 divided by the forward 4Q opearting earnings Source: Standard and Poor's, FactSet, Thomson Reuters, and Omega Advisors, Inc. OMEGA ADVISORS, INC. 9

10 Atlas Energy, LP General Partner of APL and ARP Ticker: ATLS Unit Price: $47.30 Units Out: 51.4 million Equity Market Value: $2.43 billion Net Long-term Debt: $143 million [1] Enterprise Value: $2.57 billion Gross Cash Flow (Projected 2014): $148 million Distributable Cash(Projected 2014): $130 million Distribution (2013E): $1.76 (Yield 3.7%) Distribution (2014E): $2.50 (Yield 5.3%) Relative Valuation ATLS Comparable GPs EV/DCF (2014): 19.5x 23.9x Yield (2014): 5.3% 4.1% 3-Year Div. Growth Rate: 21.9% 16.7% ATLS Target Price $60.00, +27%. Total Return: +32%. Target Price is based on a 4.8% yield, 21.5x EV/DCF (2015) [1] Parent company debt of $240 million less parent company cash of $97 million. OMEGA ADVISORS, INC. 10

11 ATLS Public 45 Bcf of Proved Gas Reserves in Arkoma Basin Public 94% LP Interest 100% GP Interest 6% LP Interest 37% LP Interest 100% GP Interest 63% LP Interest APL ARP Gas Gathering & Processing in Eagle Ford, Permian Arkoma & Mississippian Basins 1.4Bcf of Proved Reserves (83% Gas) in Barnett, Marcellus, Utica, Raton, Mississippian & Black Warrior Basins Market Value: $2.9 Billion 16% GP Interest 12% LP Interest Market Value: $1.4 Billion BlackRock GP & LP Lightfoot Capital MLP Incubator (Arc Logistics) GE Capital OMEGA ADVISORS, INC. 11

12 Omega Projection: ATLS ATLS 3Q'13E 4Q'13E 2014E APL Distrbutions LP Units GP & IDRs ARP Distrbutions LP Units Class C Converts GP & IDRs Cash from MLPs CashFlowfromE&P Cash Flow from Other G&A Expense Interest Expense Maint Cap Ex DCF LP Units DCF per Unit $0.46 $0.55 $2.49 Distribution $0.46 $0.55 $2.50 Coverage Ratio Long Term Debt Revolver ($50 Cap) 34 0 Term Loan Total Debt Cash Total Liquidity OMEGA ADVISORS, INC. 12

13 ATLS Net Asset Value Valuation Metric Number/ Multiple Market Actual Market Actual Cash Flow Low High Value Value Value Value APL LP Units ARP LP Units ARP Class C Units APL GP Interest ,089 1,341 ARP GP Interest Arkoma E&P Assets Partnership Syndication Lightfoot Interests Total Asset Value 2,500 3,228 Long Term Debt Cash Equity Value 2,357 3,085 Units Outstanding Value per Unit $45.85 $60.03

14 Midstream G&P MLP Comparables Distribution EV/EBITDA Yield Dividend Coverage EBITDA Price Mkt Val EV Growth ACMP $ ,675 12,556 $1.97 $ % 4.7% % DPM $ ,159 6,107 $2.86 $ % 6.4% % EROC $7.70 1,229 2,291 $0.88 $ % 11.4% % EXLP $ , ,150 $2.10 $ % 7.2% 74% 7.4% % MWE $ ,987 14,597 $3.40 $ % 5.5% % NGLS $ ,502 8,239 $2.89 $ % 6.1% % QEPM $ ,249 1,380 $1.02 $ % 5.3% % PVR $ ,568 5,311 $2.20 $ % 8.5% % RGP $ , ,701 $1.87 $ % 7.2% 75% 7.5% XTEX $ ,765 2,863 $1.36 $ % 7.5% % Average % 6.6% % APL $ ,914 5,014 $2.48 $ % 7.3% % Note: Market Value includes other Class Units & Subordinated Units; APL PIK converts included as debt. Note: Average EV/EBITDA and Yield exclude EROC, which has significant upstream assets. OMEGA ADVISORS, INC. 14

15 Upstream MLP Comparables EBITDA Distribution EV/EBITDA Yield G.P. Price EV IDR's BBEP $ , $1.92 $.9 $2.00 $ % 10.4% No LGCY $ , $2.33 $ % 8.5% No LINE $ , $2.90 $ % 11.4% No MEMP $ , $2.08 $ % 10.4% Yes QRE $ , $1.96 $ % 11.4% Yes VNR $ , $2.48 $ % 11.3% No Average % 10.6% ARP $ , $2.23 $ % 12.2% Yes Note: LINE, ARP and BBEP are pro forma for recent or pending acquisitions. OMEGA ADVISORS, INC. 15

16 General Partner Comparables Market Enterprise Dividend Yield Coverage Ratio Three Year Price Value Value EV/DCF Div. Growth MLP Industry Group Partnership General Partners: CEQP $ ,413 3,413 $0.58 $ % 5.2% % Oil & Gas Pipelines & Storage ETE $ ,667 56,497 $2.64 $ % 4.4% % Gas Pipelines & Midstream NSH $ ,022 1,039 $2.18 $ % 9.2% % Oil Pipelines & Storage PAGP $ ,271 13,271 NM $ NM 2.8% NM 1.05 NM Oil Pipelines & Storage WGP $ ,756 11,533 $0.81 $ % 2.7% % Gas Midstream Corporate General Partners: KMI $ ,771 84,779 $1.61 $ % 5.0% % Gas & Products Pipelines, Diversified OKE $ ,496 20,907 $1.48 $ % 3.1% % Gas Pipelines & Midstream TRGP $ ,215 7,621 $2.19 $ % 3.7% % Gas Pipelines & Midstream WMB $ ,766 37,579 $1.44 $ % 4.8% % Gas Pipelines & Midstream XTXI $ ,025 $0.47 $ % 2.5% % Gas Pipelines & Midstream Average % 3.8% % ATLS $ ,431 2,574 $1.76 $ % 5.3% % Gas Midstream & Upstream Note: XTXI unit price and data are prior to 10/21/13 announcement of DVN transaction; PAGP is an IPO priced on 10/15/13 Average Comparable Yields and Dividend Growth Rates exclude outlier NSH OMEGA ADVISORS, INC. 16

17 Monitise PLC Capitalization ti Share Price Shares Outstanding (mm) 1,620 Equity Market Value (mm) 935 Total Debt 0 Cash 87 Net Cash 87 Enterprise Value 848 OMEGA ADVISORS, INC. 17

18 Monitise offers banks three product suites: Buy Anything, Pay Anyone and Bank Anywhere Source: Monitise Company Presentations OMEGA ADVISORS, INC. 18

19 What has Monitise Done Over the Last Year? Source: Monitise Company Presentations OMEGA ADVISORS, INC. 19

20 Recent High Profile Deals 5 year global alliance agreement First Global Alliance Agreement with a MNO Monitise selected as global Mobile Money Partner Telefónica is one of the world s largest telecommunications businesses, ranking 3rd in mobile subscribers Over 317m total subscribers in 24 countries Operates using the O2, Movistar and Vivo commercial brands Largest and most credible provider of software, technology, and services to the financial sector Largest and most credible provider of B2C Smarter Commerce solutions to global retail Accelerates innovation and delivery for Monitise customers via commerce related offerings and Mobile First capabilities Complementary capabilities including online banking Aligned vision for Mobile Money and the journey for digital commerce Partnership will leverage Monitise s mobile payments and commerce technology Source: Monitise Company Presentations OMEGA ADVISORS, INC. 20

21 Analysts See a Big Opportunity Source: Gartner, Company data, Goldman Sachs Research estimates. OMEGA ADVISORS, INC. 21

22 Undervalued Relative to Peers Source: Goldman Sachs Research OMEGA ADVISORS, INC. 22

23 SandRidge Energy, Inc. (Ticker: SD) Trading Summary ($MM) Price $6.37 Shares 589 Mkt Cap $3,752 Plus: Debt 3,194 Less: Cash 1,000 Plus: Royalty interests 772 TEV $6,718 Valuation SD E&P Group TEV/EBITDA 5.4x 7.1x $/boe/day $67 $95 $/mcfe proved $3.05 $4.20 Price Targets Target % Change Upside $ % Downside $ % OMEGA ADVISORS, INC. 23

24 Why SD is Special Underlying quality of the Mississippian is fundamentally misunderstood by the Street Simply put, the Street thinks the asset is getting worse when it s actually getting better Production rates on new wells have increased 15% quarter over quarter Wells are performing above the company s stated type-curve Undergoing large-scale l, fundamental change production is up and costs are down Overhead reductions of $50-75 million per year Management change out with the old (growth for growth s sake), in with the new (capital efficiency) Refocused on drilling known, good acreage Hidden asset value is currently being ignored we think that will change soon Additional Woodford and other Mississippian objectives - $1-2/share of upside Gulf of Mexico sub-salt salt prospects - $1/share of upside Salt Water Disposal system drives industry-low opex in the Mississippian and provides competitive advantage in the basin, as other operators are saddled with onerous water disposal costs Large acreage position makes it a strategic t targett ~1 million good acres make it a meaningful potential resource base to a larger E&P Repsol is SD s partner in the Mississippian; Repsol is expected to have $15-20Bn of cash on their balance sheet by early next year OMEGA ADVISORS, INC. 24

25 Near-Term Catalysts expect a lot changes before year end Estimates need to increase Company has guided to 2014 production growth of 10-11%, the Street is still at 3% Given recent well performance, we expect an upward shift in the Mississippian type curve The Street has mis-modeled SD s royalty interest payments going forward Simmons & Co commentary (10/7/2013): We now estimate Q3 production of 90.2kb/day versus Bloomberg consensus of 88.7kb/day SD should be able to support their previous indications of low double digit FY 14 production growth and show an early path toward closing their cash flow gap going forward NAV could be biased higher Woodford and other Mississippian objectives Will get results from SD s first Woodford wells on Q3 call (November 5) DVN comments from their Q2 results: In addition to delivering an excellent quarter, we achieved some exciting results in a new light-oil resource play. We have now identified 400,000 net acres in the Mississippian Trend with Woodford Oil Shale potential. GOM sub-salt JV/sale could happen before year end; industry chatter is bullish and activity is ramping up SD owns two large sub-salt prospects that could hold 100MM+ BOE of resource EXXI partnered with XOM and APA in four similar prospects APA sold their GOM Shelf assets to Fieldwood, but retained a 50% interest in the sub-salt prospects Capital One sub-salt commentary (9/27/2013): A developing E&P theme over the past several months has been the reemergence of the potential for drilling deeper horizons in the GOM shallow waters that is being primarily driven by less expensive and improved technology IRRs range from 35-55%; $/BOE valuations of $8-10/bbl 2014 guidance will start to get Street comfortable with their stated growth of 10% next year OMEGA ADVISORS, INC. 25

26 Operating Summary Mississippian results will drive value Mississippian Conventional oil/gas drilling in Oklahoma and Kansas SD own 1.9mm net acres in the play; 1mm of which we deem to be good 2013 production: 46kbbl/day 2014 production: 60kbbl/day (30% growth) Currently focused on 6 core areas Gulf of Mexico Conventional GOM shelf prospects 2013 production: 28kbbl/day Future production profile: flat to down, based on future capex spending Other Permian oil and West Texas Overthrust gas Source: SandRidge Energy, Inc. OMEGA ADVISORS, INC. 26

27 SD Ownership strong core of long term, fundamental shareholders Riverstone Owns 52 million shares Sold Dynamic Offshore (GOM) to SD and received shares as consideration TPG Owns 36 million shares Led the Proxy contest that resulted in a new CEO, lower overhead, and more focus on capital efficiency Have publically stated they think the stock is worth $11-12/share Mount Kellett Owns 25 million shares Have publically stated they think the stock is worth $15+/share, based on higher future gas prices Other large shareholders Fairfax: 32 million shares Highfields: 13 million shares Litespeed: 13 million shares OMEGA ADVISORS, INC. 27

28 Risks - liquidity concerns are overblown and well results are showing repeatability Liquidity and cash burn Current liquidity of $1.8Bn - $1Bn of cash and an undrawn $775 million credit facility Burning $ million of cash in 2014; $500 million in 2015 Enough liquidity to last to 2015; by the time they need incremental funding, EBITDA and reserves will be 30-40% higher than today and future liquidity needs will be sufficiently low such that they can be satisfied through (i) borrowing base facilities or (ii) smaller assets sales (GOM or royalty trust units) Asset variability - historical well results in the Mississippian have been inconsistent This was driven by the fact the old management team was spending 30% of their capital drilling riskier, stepout wells outside their known, core areas With the renewed focus on core areas, variability has declined and absolute well performance has improved New CEO and management will recent change result in operational mishaps? We have been impressed with James Bennett, the new CEO; focused, sharp, and shareholder-driven Operational staff is bolstered by David Lawler, COO; according to industry sources, he had been integral in driving i down costs in the Mississippiani i i Natural gas prices 45-50% of SD s production is natural gas Every $1/mcf change in gas prices equates to $1/share in NAV OMEGA ADVISORS, INC. 28

29 Sprint(S) Share Price: $6.40/share Equity Market Value: $25 billion Net Long-term Debt: $21 billion Enterprise Value: $46 billion Consensus EBITDA (Projected 2014): $6.8 billion OMEGA ADVISORS, INC. 29

30 Sprint is Cheap Relative to its Peer Group EV per Post Paid Sub $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Sprint T-Mobile Verizon AT&T 3.0x EV / Sales 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x T-Mobile Sprint AT&T Verizon ) VZ is PF for the full acquisition of Verizon Wireless 2) Sprint numbers are based on Omega est. 3) VZ, T and TMUS numbers are based on Wall St. Consensus OMEGA ADVISORS, INC. 30

31 Softbank Could Create Significant Value for Sprint holders by Closing the Margin Gap U.S. Wireless Margins (as of Q2 2013) 60.0% Q Wireless s EBITDA Margin ns 50.0% 40.0% 30.0% 0% 20.0% 17.6% 24.7% 42.4% 49.8% 10.0% 0.0% Sprint T-Mobile AT&T Mobility Verizon Wireless Source: Company Filings (1) T-Mobile EBITDA margins are not adjusted for receivables related to their equipment installment plans OMEGA ADVISORS, INC. 31

32 Softbank Has a Proven Turnaround Track Record Source: Softbank Company Presentation OMEGA ADVISORS, INC. 32

33 Softbank Continues to Deliver Margin Expansion in Japan Softbank Mobile EBITDA Margins 45.0% 40.0% 38.6% EBITDA Margins 35.0% 30.0% 25.8% 31.9% 31.9% 34.4% 25.0% 22.3% 23.6% 20.0% 15.0% 10.0% 2007A 2008A 2009A 2010A 2011A 2012A Q1 '13 Source: Softbank public filings OMEGA ADVISORS, INC. 33

34 Sprint s Earnings Potential if Masa Delivers Illustrative Earnings Opportunity Assumed EBITDA Margin % 35.0% 40.0% 45.0% Implied EBITDA $10,217 $11,676 $13,136 Less: D&A $6,000 $6,000 $6,000 Less: Interest $1,700 $1,700 $1,700 Net Income $2,517 $3,976 $5,436 Shares Outstanding 4,007 4,007 4,007 EPS $0.63 $0.99 $1.36 Note: Figures assume no revenue growth Note: Sprint is not expected to be a near-term cash tax payer given sizeable NOL balance Note: Illustrative earnings opportunity is based on an assumed margin of total service revenue OMEGA ADVISORS, INC. 34

35 Softbank Sees Meaningful Synergy Opportunities Source: SEC filing (May 8, 2013), Softbank Projections OMEGA ADVISORS, INC. 35

36 Importance of Downlink Spectrum Source: Softbank Company Presentation OMEGA ADVISORS, INC. 36

37 Downlink Spectrum Disparity MHz Total Dow wnlink Spectrum ( MHz) MHz 51 MHz 64 MHz 0 T-Mobile Verizon AT&T (PF for Leap) Sprint MH Hz per million subsc cribers Verizon AT&T (PF for Leap) T-Mobile Sprint Source: Citi Research, FCC, Company reports OMEGA ADVISORS, INC. 37

38 Softbank s View of the U.S. Market Source: Softbank Company Presentation OMEGA ADVISORS, INC. 38

39 NOTES TO INVESTMENT RESULTS This material discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as investment advice. This information may not be current and Omega has no obligation to provide any updates or changes. We have relied upon and assumed without independent verification, the accuracy and completeness of all information from third party sources. Any reference to a specific company does not constitute a recommendation to buy, sell or hold securities of such company. Opinions and views expressed herein are for informational purposes only and should not be construed as investment advice. They involve a number of assumptions that may not prove to be valid so that actual results could differ significantly. If any of the assumptions used in the example in this presentation do not prove true, results may vary significantly from the examples shown. These examples are for illustrative purposes only and do not purport to show actual results. Alternative Investment such as hedge funds are subject to less regulation than other types of pooled investment vehicles such as mutual funds, may make speculative investments, may be illiquid and can involve a significant use of leverage, making them substantially visible than other investments. No part of this material may, without Omega s prior written consent, be (i) copied, photocopies or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director or authorized agent of the recipient. OMEGA ADVISORS, INC. 39