ENERGY SECTOR PRESENTATION

Transcription

1 NOVEMBER 16TH S T U D E N T I N V E ST M E N T M A N A G E M E N T P R O G R A M T H E O H I O S T A T E U N I V E R S I T Y ENERGY SECTOR PRESENTATION David Clark- Joseph Felice Green Jiri Woschitz

2 OVERVIEW BUSINESS ANALYSIS FINANCIAL ANALYSIS VALUATION ANALYSIS RECOMMENDATION

3 OVERVIEW

4 Energy Sector 3rd Largest Sector in S&P 1.27 Trillion in Market Capitalization SIM holds 3 S&P 500 Energy Companies SIM Energy Holdings Symbol SIM Weight Industry Chevron CVX 3.78% Oil & Gas Integrated Murphy Oil MUR 3.70% Oil & Gas Integrated NaEonal- Oilwell Varco NOV 4.06% Oil & Gas Equipment Services

5 2 of the Largest in the S&P 500 Largest S&P Members S&P Market Cap (B) Weight Exxon Mobil 3.24% 358 Apple Inc. 2.60% 283 MicrosoX Corp 2.07% 225 Procter & Gamble 1.68% 183 IBM 1.64% 179 Johnson & Johnson 1.61% 175 GE 1.60% 174 Chevron Corp 1.58% 172 AT&T Inc 1.55% 168 JP Morgan Chase & Co 1.43% 156 Total S&P Weight in Top 10 Holdings 19.04% 2070

6 SIM: Energy Overweight 60 bps S&P Sector Breakdown SIM Sector Breakdown 3.4% 3.1% 3.7% 10.6% 19.1% 15.6% 10.7% 11.0% 11.2% 11.7% 2.1% 4.0% 19.8% 12.2% 11.6% 4.2% 13.0% 10.7% 10.2% 12.3%

7 Energy Vs. S&P 500 Trailed S&P by 801 bps Over past 12 Mo. Outperformed S&P by 222 bps Over past 3 Mo.

8 S&P 500 Performance by Sector 25.00% 20.00% 15.00% MTD 10.00% 5.00% 0.00% % Energy Materials Industrials Cons Disc Cons Staples Health Care Financials Info Tech Telecom Svc UEliEes Sector Quarter Returns Energy 11.99% Materials 8.72% Industrials 3.17% Cons Disc 7.70% Cons Staples 2.91% Health Care 1.20% Financials 4.04% Info Tech 6.54% Telecom Svc 0.31% UEliEes % QTD YTD

9 S&P Energy Sector Industry Makeup of Energy Sector 1% 2% Year to Date Performance: Energy Sector 59% 2% 3% 16% 16% Oil & Gas Refining & MarkeEng Oil & Gas Drilling Coal & Consumable Fuels Oil & Gas Storage & TransportaEon Oil & Gas Equipment & Services Oil & Gas ExploraEon & ProducEon Integrated Oil & Gas 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% % YTD: Equipment & Services Refining & MarkeEng Storage & TransportaEon

10 Largest Companies in Energy Sector Top 10 S&P Energy Components Symbol Market Cap (Billions) Industry Exxon Mobil XOM 358 Oil & Gas Integrated Chevron CVX 171 Oil & Gas Integrated Schlumberger SLB 101 Oil & Gas Equipment Services ConocoPhillips COP 94 Oil & Gas Integrated Occidental Petroleum OXY 71 Oil & Gas Integrated Suncor Energy SU 54 Oil & Gas Integrated Apache APA 40 Halliburton HAL 33 Devon Energy DVN 31 National-Oilwell Varco NOV 24 Oil & Gas Exploration Production Oil & Gas Equipment Services Oil & Gas Exploration Production Oil & Gas Equipment/ Services

11 Porter s 5 Forces: Acracdve Threat of New Entrants (low) n Capital Intensive, Knowledge Intensive n Interest from BRIC and Sovereign Wealth Power of Suppliers (high) n Few, Powerful n Countries increasingly interested in their own energy resources Power of Buyers (low) n Lack of product differeneaeon, but price is inelasec in short run Subsdtutes (medium) n Petroleum AlternaEves - Imperfect subsetutes Compeddve Rivalry (medium) n Mature industry growth rates n Tacit Collusion

12 BUSINESS ANALYSIS

13 Key Drivers for the S&P 500 Energy Sector Energy demand - World populaeon - Demand for Cars, heaeng etc. Energy supply (produceon) - Capacity - Oil reserves, gas reserves etc. Prices of Oil, Natural Gas etc. OPEC Decisions

14 S&P 500 E vs. LIBOR (3Mth.) S&P500 ENERGY PI [U$] US INTERB 3 MTH OR [U$]

15 S&P 500 E vs. US CPI Energy S&P500 ENERGY PI [U$] US CPI ENERGY Y [U$]

16 S&P 500 E vs. OPEC Oil Price and Brent Crude Oil Price S&P500 ENERGY PI [U$] OPEC Oil Price [U$] Crude Oil- Brent [U$]

17 S&P 500 E vs. Natural Gas S&P500 ENERGY PI [U $] Natural Gas US BL [US Cents/MM Btu] Natural Gas US DS [U$]

18 S&P 500 E vs. Crude Oil Producdon S&P500 ENERGY PI [U$] CrudeOilProd WW M- 1 [mbarrels/day]

19 S&P 500 E vs. World Populadon S&P500 ENERGY PI [U$] WD POPULATION [Millions]

20 Model to explain S&P 500 Energy Index ln (#$) ' = ) 0 + ) 1 * ' + ) 2 ln (+, ' ) + ) 3 ln (-., ' ) + ) 4 ln (/,$ # ' ) + ) 5 /+, ' 1 + ) 6 01, ' +2 Where EI: S&P 500 Energy Index L: LIBOR (3 Mth.) OP: Opec Oil Price NGP: Natural Gas Prices CPIE: US ConsumpEon Price Index Energy COP: Crude Oil ProducEon WDP: World PopulaEon

21 Model to explain S&P 500 Energy Index

22 Forecast explaining variables L: LIBOR (3 Mth.) hlp:// OP: Opec Oil Price - hlp:// - Annual Energy Outlook 2010 of the US Department of Energy, - World Oil Outlook_2009_OPEC NGP: Natural Gas Prices Annual Energy Outlook 2010 of the US Department of Energy CPIE: US ConsumpEon Price Index Energy AssumpEons based on the forecasts of the price trends of Oil and Gas COP: Crude Oil ProducEon Annual Energy Outlook 2010 of the US Department of Energy, WDP: World PopulaEon Stable

23 S&P 500 Energy Index Model Forecast S&P 500 Energy Index upper bound 95% lower bound 95%

24 FINANCIAL ANALYSIS

25 REVENUE GROWTH YEAR- OVER- YEAR 250% ENERGY S&P 500 CVX MUR NOV 200% 150% 100% 50% 0% - 50% - 100%

26 10- YEAR ENERGY REVENUE Energy Revenue high low median current

27 EPS GROWTH YEAR- OVER- YEAR 200% ENERGY S&P 500 CVX MUR NOV 150% 100% 50% 0% - 50% - 100%

28 12.0% 10.0% 8.0% 6.0% Energy: Net Profit Margin Absolute NPM Energy Absolute high 9.8 low 4.9 median 7.4 current % 2.0% 0.0% Energy: Net Profit Margin Reladve to S&P 500 NPM Reladve to S&P 500 high 1.4 low 0.7 median 0.9 current

29 VALUATION ANALYSIS

30 Industry & Sector Valuadon Energy Sector Reladve to S&P 500 Rado High Low Median Current Trailing P/E Forward P/E P/S P/B P/CF Oil Exploradon Reladve to S&P 500 Rado High Low Median Current Trailing P/E Forward P/E P/S P/B P/CF Overvalued by >10% Inline with S&P Undervalued by >10% Oil Equipment Reladve to S&P 500 Rado High Low Median Current Trailing P/E Forward P/E P/S P/B P/CF Oil Integradon Reladve to S&P 500 Rado High Low Median Current Trailing P/E Forward P/E P/S P/B P/CF

31 RECOMMENDATION: REDUCE 60 BPS

32 RECOMMENDATION Current SIM weight: 12.3% vs S&P 500 weight of 11.7% Reduce holdings by 60 bps to mirror S&P 500 Do not foresee much movement within the energy sector Opportunity to allocate addieonal holdings to another area of the pornolio with larger upside