INFORMATION TECHNOLOGY

Transcription

1 INFORMATION TECHNOLOGY Company Presentation Tsung-Hang (Michael) Lin, Nick Locallo, Mallory Mason, Shane McMahon, Mehdi Mirsaneh FIN /14/15

2 Source: SIM Fund Appraisal -1/30/2015 Sector Recommendations Maintain sector weight: - overweight by 2.83% Positive Drivers: - increasing margins - higher yield - better growth prospect Risks factors: - lofty valuation in Internet Sector - fierce competition in hardware - destructive innovation - regulation

3 Sub-sector Recommendations 2014 P/E 2015E P/E Div Yield Profit Margin Est. Sales/Share Growth Semiconductor & Equipment % Software & Services % Technology Hardware & Eqt % Favorite: Semiconductor Better risk/return relation High entry barrier Benefit from IoT Equipment, IDM or Foundry will be better choice than fab-less design house

4 SIM vs S&P 500 Div. Reinvest Return 52 weeks YTD S&P % 2.68% Information Tech Sector 22.66% 1.99% SIM Portfolio: 22.60% S&P 500: 19.77% Materials, 2.58% [CATEGORY NAME], [VALUE] Telecom Services, 2.90% Utilities, 0.00% Cash, 1.53% Consumer Discretionary, 8.42% Consumer Staples, 9.08% Energy, 7.26% [CATEGORY NAME], [VALUE] Telecom Services, 2.32% Materials, 3.17% Utilities, 3.05% Consumer Discretionary, 12.66% Consumer Staples, 9.76% Energy, 8.07% Industrials, 8.05% Industrials, 10.31% Healthcare, [VALUE] Financials, 19.32% [CATEGORY NAME], [VALUE] Financials, 16.28%

5 Source: SIM Fund Appraisal -1/30/2015 Current SIM Holdings Company Market Value % of Portfolio Activision Blizzard Inc. $138, % Apple Inc. $622, % EMC Corp $362, % Google Inc. $410, % Qualcomm Inc. $224, % Vantiv Inc. $527, %

6 A Cell Phone Electronic Board Qualcomm designs and develops wireless communication chips for mobile devices. Qualcomm s competitive advantage: Patented Designs Integration of Products

7 Qualcomm s Market Shares LTE Design Baseband Design

8 Main Market Driver: Sales of Smart Phones and Internet of Things! Smartphone Share in Semiconductor Application

9 Multiples Valuation Qualcomm vs Peers Qualcomm vs Sector and S&P 500 P/E P/B P/S P/CF Qualcomm Broadcom Corp Texas Instrument Intel Corp Marvell Technology NVIDIA Corp Maxim Integrated Micron Technology QCOM vs IT Sector High Low Median Current P/E P/B P/S QCOM vs S&P 500 High Low Median Current P/E P/B P/S

10 DCF Valuation Discount factor 10.75% Long term growth rate 4.5% Year E 2016E 2018E 2019E 2021E 2023E 2025E Revenue $ 26,487 $ 27,948 $ 29,503 $ 32,184 $ 33,793 $ 37,257 $ 41,076 $ 45,286 %Grow th 5.5% 5.6% 5.0% 5.0% 5.0% 5.0% 5.0% Operating Margin 33.1% 36.7% 38.7% 36.0% 35.0% 34.0% 34.0% 34.0% Net Income $ 7,967 $ 8,718 $ 9,363 $ 9,848 $ 10,053 $ 10,767 $ 11,871 $ 13,088 %Grow th 16.3% 9.4% 7.4% -2.3% 2.1% 5.0% 5.0% 5.0% Free Cash Flow $ 8,135 $ 8,589 $ 9,262 $ 9,752 $ 9,952 $ 10,655 $ 11,748 $ 12,952 Current P/E 16.5 Projected P/E Current EV/EBITDA 3.0 Projected EV/EBITDA Shares Outstanding 1,714 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 15.50%

11 Risks Antitrust investigations in China $1Bn fine in early 2015 Consolidated customers; Apple and Samsung Fierce competition by other device developers including Intel, Samsung and so on

12

13 Activision Blizzard is the world leader in interactive gaming. The company is composed of two main operating units, Activision Publishing and Blizzard Entertainment. Activision Publishing develops and publishes online, personal computer, video game console, handheld, mobile, and tablet games worldwide. The company publishes interactive software through digital downloads as well as retail outlets. Blizzard Entertainment develops, hosts, and supports subscription-based massively multi-player online role-playing games.

14 Stock Overview Ticker: ATVI Current Price: $22.96 Target Price: $25.76 Market Cap: B Shares Outstanding: 719 M Dividend Yield: 1.02% 52-week Price Range: $17.73-$24.18 Price to Earnings: Earnings per Share: 1.13

15 12 Month Price Chart

16 Growth and Risk Outlook Destiny and Call of Duty: Advanced Warfare downloadable content will drive digital sales until the launch of the next chapter of Call of Duty in November This chapter has been in the making for three years by Treyarch, the company behind Black Ops (franchise sales record holder), and expects it to sell at least as well as Advanced Warfare The launch of Call of Duty Online, the free-toplay game that was launched in China will not contribute much to this years results but will help build a consumer base

17 Income Statement

18 Recommendation: BUY DCF Valuation

19 Vantiv, Inc. is an electronic payment processing company headquartered in Cincinnati, Ohio. The company had been providing payment processing solutions for 40 years, catering services to both financial institutions as well as merchant businesses. Since the corporate rebranding in 2011, (previously Fifth Third Processing Solutions) Vantiv has expanded its services through key acquisitions of premier brands such as Element Payment Services and Mercury Payment Systems.

20 Vantiv Business Analysis Lines of Business Merchant Services Over 500,000 merchant locations $15.5 Billion in purchase transactions (28% growth) Second largest merchant transaction acquirer Financial Institution Services Over 1400 FI services (1% growth) Mostly credit unions and regional and community banks

21 Business Analysis cont. Key business drivers Expansion of client base through improved distribution channels and strategic acquisitions High scalability of integrated technology platform Liability shift to occur October 1, 2015 Growth of Europay-MasterCard-Visa (EMV) chip-based card transactions (~600M EMV chip-based cards to be issued by October date) Growing demand for EMV-card acceptance and improvements in Merchant Services and FI Services businesses Continued demographic changes in favor of adoption of new payment technologies Increasing focus on value-added services related to data security and fraud protection Increasing need of information solutions (big data) from Merchants and Financial Institutions

22 Vantiv Financial Analysis Financial Highlights (2014) Total revenue - $2.577 B (22% growth) Merchant Services net revenue - $1.066 B (27% growth, fueled by 22% increase in transactions and 4% increase in net revenue / transaction) FI Services net revenue - $336 M ( <1% growth) Income from operations - $315 M (11% decline) Net Income - $169 M (19% decline) Going Forward ( ) Revenue growth rate - 5% (conservative compared to consensus) Net Income growth rate % (in line with guidance)

23 Vantiv Valuation

24 Vantiv Valuation cont. Comparison with Competitors Comparison with HPY and Sector Lower P/E and P/B compared to HPY Lower P/S compared to Visa IT Sector Valuation IT sector seems to be near the industry median in terms of pricing IT sector also seems to be fairly priced in or slightly underpriced compared to the S&P 500 Vantiv seems to be relatively undervalued when compared with the most comparable competitor, Heartland Payment Systems

25 DCF Valuation Terminal Discount Rate - 9.5% Terminal FCF Growth Rate - 5% Revenue Growth Rate - 5% Net Income Growth Rate %

26 Vantiv Recommendation Recommendation Risks Ticker: VNTV Current Price: $39.31 Target Price: $45.73 Potential Upside: 16.3% Recommendation: BUY (1126 shares at current price to raise Vantiv holding by 76 bps to 6% of SIM portfolio) Primary Catalysts Positive growth in all areas of the business as technology platform is highly scalable Further transaction acquisition- and cost-synergies will continue as a result of Mercury and Element acquisitions Positive demographic changes including adoption of EMV chip-based cards and liability shift Vantiv s ability to provide value-added services including information solutions and data security If Vantiv cannot keep up with rapid technology developments, use of service and revenues could decline The payment processing industry is highly competitive and Vantiv faces many larger, more financially flexible competitors Pricing pressure from larger competition could depress services revenue Security breaches are a going concern

27 Sector Recommendations Maintain sector weight: overweight by 2.83% Positive Drivers: increasing margins higher yield better growth prospect Risk factors: lofty valuation in Internet Sector fierce competition in hardware destructive innovation regulation

28 Stock Recommendations Company Target Price % Upside/ (Downside) Recommendation Activision Blizzard Inc. $ % BUY Apple Inc. $ % HOLD EMC Corp N/A N/A N/A Google Inc. $ % HOLD Qualcomm Inc. $ % BUY Vantiv Inc. $ % BUY