Katsman,Konstantin A Lee,Dong Hyun

Transcription

1 Katsman,Konstantin A Lee,Dong Hyun

2 Agenda Introduction PSEG Xcel Energy Inc. Financial/Valuation Analysis Recommendation Q&A

3 Utilities (PEG+XEL) Performance

4 Overview - size as % of the S&P500(Utilities) <Resource : S&P 500 website Nov >

5 Overview-industries Utilities Sector Size(Market Cap.): 648.1B Industries Industry Market Cap P/E ROE % Div. Yield % Price to Book Value Electric Utilities 342.6B Diversified Utilities 141.2B Gas Utilities 107.8B Foreign Utilities 46.4B Water Utilities 10.1B <Resource : Yahoo Finance website>

6 S&P 500 vs. SIM Weight S&P 500 (%) SIM Weight (%) energy; consumer staples; financials; consumer discretionary; dividended receivables; 0 cash; 0 health care; industrials; IT; materials; 3.63 telecom; 3.12 utilities; 3.55 energy; financials; consumer staples; 9.98 consumer discretionary; dividended receivables; 0.08 health care; industrials; 12.5 cash; 2.74 IT; materials; 3.84 telecom; 4.04 utilities; 2.13 consumer discretionary consumer staples energy financials health care industrials IT materials telecom utilities cash <Resource : SIM website Oct > dividended receivables

7 Economic Analysis S&P500 & Utilities $ value % value Over perform Under perform Over perform Over perform Under perform

8 S&P/Sector Performance <Resource : S&P 500 website Nov , SIM Reports to the Treasurer Oct.2010>

9 Public Service Enterprise Group(NYSE:PEG) PSEG is an integrated generation and energy company headquartered in Newark, New Jersey. 3 main subsidiaries (% of total revenue) PSE&G(20.4%) - a regulated New Jersey utility delivering gas and electric safely and reliably to about 70% of New Jersey's population. PSEG Power(74.7%) - a major wholesale energy supplier in the Northeast with three main subsidiaries: PSEG Fossil LLC, PSEG Nuclear LLC, and PSEG Energy Resources & Trade LLC (PSEG ER&T). PSEG Energy Holdings(4.5%) - a company with domestic investments and has t wo main energy-related businesses: PSEG Global and PSEG Resources.

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11 PEG/S&P 500 performance(10 years)

12 Relative Multiple valuation(peg) Relative to Industry High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P 500 High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF

13 Absolute valuation Absolute Valu ation High Low Median Current #Your Targ et Multiple *Your Target E, S, B, etc/share Your Tar get Price (F x G) A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF

14 Discounted Cash Flow Public Service Enterprise Group(NYSE: PEG) Terminal Disco unt Rate = 9.0% Student: LEE, Dong Hyun Terminal FCF G rowth = 5.0% Date: 10/19/10 Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Revenue 12,530 12,655 12,782 12,910 13,039 13,169 13,301 13,434 13,568 13,704 13,841 % Growth 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Operating Income 2,307 2,430 2,439 2,582 2,608 2,634 2,660 2,687 2,714 2,741 2,768 Operating Margin 18.4% 19.2% 19.1% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% Interest and Other Income Interest % of Sales 3.7% 3.6% 3.6% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Taxes 1,191 1,243 1,248 1,277 1,290 1,302 1,315 1,329 1,342 1,355 1,369 Tax Rate 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% 43.00% Net Income 1,579 1,648 1,655 1,692 1,709 1,726 1,744 1,761 1,779 1,797 1,815 % Growth 4.4% 0.4% 2.3% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Add Depreciation/Amort % of Sales 7.1% 6.8% 6.5% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% 6.00% Plus/(minus) Changes WC % of Sales 1.1% 1.0% 0.9% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Subtract Cap Ex 1,300 1,300 1,291 1,304 1,317 1,330 1,343 1,357 1,370 1,384 1,398 Capex % of sales 10.4% 10.3% 10.10% 10.10% 10.10% 10.10% 10.10% 10.10% 10.10% 10.10% 10.10% Free Cash Flow 1,305 1,328 1,317 1,292 1,305 1,318 1,331 1,345 1,358 1,372 1,385 % Growth 1.7% -0.8% -1.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% NPV of Cash Flows 8,534 36% NPV of terminal value 15,363 64% Terminal Value 36,369 Projected Equity Value 23, % Free Cash Flow Yield 7.63% Free Cash Yield 3.81% Current P/E Terminal P/E 20.0 Projected P/E Current EV/EBITDA Projected EV/EBITDA Terminal EV/EB ITDA 10.1 Shares Outstanding 507 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 39.7%

15 Valuation(PEG) Valuation(weighted) : $ DCF P/Forward E+ 0.1 P/S P/CF P/EBITDA = 0.3* * * * * *39.6 = $40.95 Current Price : $33.73 Upside : 21.6% Dividend Yield : 1.37 (4.5%) Market Capital : 15.5 Billion $ Sensitivity Terminal Discount Rate Recommendation : Buy 25 BPS Terminal FCF Growth rate 4.00% 4.50% 5.00% 5.50% 6.00% 8.00% % % % %

16 Xcel Energy Inc.(NYSE:XEL) Xcel Energy Inc. (Xcel Energy), is a holding company, with subsidiaries engaged primarily in utility business Operations included the activity of 4 wholly owned uti lity subsidiaries that serve electric and natural gas cust omers in eight states Companies Comprise Regulated Utility Operations States Served: 8 - Colorado, Michigan, Minnesota, New Mexico, North D akota, South Dakota, Texas and Wisconsin

17 Multiples Valuation (XEL) Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/shar e Your Target Price (F x G) A. B. C. D. E. F. G. H. P/Forward E P/S P/B P/EBITDA P/CF

18 Discounted Cash Flow Terminal Discount Rate: 9.0% Terminal FCF Growth: 3.0% TDR: 9.50% TGR: 3.25%

19 Valuation (XEL) Current Price: $23.89 Target Price:.3 DCF +.3 P/FE +.1 P/B +.1 P/S +.1 P/CF +.1 P/EBITDA.3 (22.48) +.3 (20.30) +.1 (23.05) +.1 (22.30) +.1 (22.63) +.1 (20.41) = Downside: 9.3% Dividend Yield: 4.36% $10.64B Market Cap Recommendation: Sell 100% TDR Sensitivity Analysis: TGR 2.25% 2.75% 3.25% 3.75% 4.25% 8.50% % % % %

20 Q&A What questions do you have?