Utility Sector. Jun Liu, Ran Yan, Hongda Zhang 5/28/2012

Transcription

1 Utility Sector Jun Liu, Ran Yan, Hongda Zhang 5/28/2012

2 Consumer Discretionary 10.04% Dividend Receivables 0.08% Cash 3.83% Telecommunicat ion Services 1.02% Materials 3.93% Consumer Staples 10.95% Information Technology 21.91% SIM Portfolio Energy 10.42% Financials 13.36% Health Care 13.61% S&P500: 3.50% Utility SIM Portfolio: 3.47% Utility Adjusted 3.61% 11 bps higher Industrials 7.37% Utilitie 3.47% Portfolio

3 Current Price Target Price Potential Recommendation NRG Energy Inc. : % Hold Duke Energy: % Hold Calpine Corporation: % Hold Currently Holding 25,200 shares of NRG at the unit cost of $16.88 Portfolio

4 NRG

5 One of the largest power generation and retail electricity businesses in the U.S. Operations include: energy production and cogeneration facilities, thermal energy production and energy resource recovery facilities Its power plants provide more than 25,000 megawatts of generation capacity and its retail and thermal subsidiaries serve more than 2 million customers in 16 states. Market Capitalization $3.56B Shares Outstanding M Preferred Dividend Yield 0.25% Beta Week High $ Week Low $ Week Change % S&P Week Change -0.78% 50-Day Moving Average $ Week Stock Performance Overview

6 Value Drivers: Diversified portfolio of assets helps to mitigate the volatility in fuel price and in the market demand cycles fuel-type dispatch level Region Development of renewables, with a concentration in solar Differentiation in Retail Business Business Analysis

7 Risks: Low natural gas price deteriorated operating margin Regulatory issues impose more costs Aging facilities cause low efficiency and competitive disadvantage Business Analysis

8 Financial Analysis

9

10 Valuation Analysis

11 Valuation Analysis

12 Recommendation: HOLD Valuation Analysis

13 Duke Energy

14 150+ year of service employees $57 billion in assets 35,000 megawatts of owned capacity 50,000 square miles of service territory 4.5 million customers Overview

15 Business Analysis

16 Current Price Wk High Wk Low Dividend 1.00 Dividend Yield 4.86% Shares Outstanding 1.34 Billion Market Capitalization Billion 12 Month Graph 10 Year Graph Stock

17 Driver Growing population/4.5 million customers Sustainability Risk Climate change Economics downturn/unemployment Drivers and risks

18 Valuation

19 Terminal Discount Rate: 9.25% Terminal FCF Growth Rate: 1.75% Implied Stock Price: $20.8 FCF Growth Rate Terminal Discount Rate % 8.0% 8.5% 9.0% 9.5% 10.0% 10.5% 1% % % % % % Valuation

20 Valuation

21 Valuation

22 Recommendation: HOLD Valuation Analysis

23 Calpine Corporation

24 Largest independent wholesale power generation company Headquarter in Houston, Texas Operates natural gas-fired and geothermal power plants 93 Power Plants 4 business segment (West, Texas, North and Southeast) 28,000 megawatts Business Overview

25 Current stock price: $ week range: $ Market Cap: 8.16 B Share outstand: 478M Beta: 1.04 Dividend Yield: N/A Target Price: $18.90 Upside Potential : 11.8% Recommendation: Hold Stock Overview

26 Catalysts Electricity price Increasing; Demand<Supply; Favorable Market heat rate Natural gas price Lower price lower cost Increasing capacity 2 New Plants; Add capacity to 3 Plants Updated technology update turbine program Natural Gas Price Efficiency & Clean & Flexibility 11.8% upside valuation Catalysts & Risks

27 Risk Revenue risk One single customer: 10% of revenue Regulation risk Compliance cost Fluctuation in commodity price Credit risk Credit rating B1; Heavy debt Competition from other sources of power Alternative energy Weather conditions Catalysts & Risks

28 CPN ERG DUK GEN Industry Market Cap 8.16B 3.56B 29.38B 1.38B 2.52B Employees 2,101 5,193 18,249 3,103 2,060 TTM Revenue 6.54B 8.95B 14.20B 3.52B 2.30B TTM EBITDA 1.55B 1.45B 5.26B M M TTM Operating Margin 14.62% 3.70% 22.51% 11.70% 13.65% TTM P/E N/A PEG (5 yr Expected) NRG Energy, Inc. [NYSE: NRG] Duke Energy Corporation [NYSE: DUK] GenOn Energy, Inc. [NYSE: GEN] Competitors

29 9,000 Revenue & Income 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Revenue Net Income 1,000 - (1,000) E 2013E 2014E Revenue 6,463 6,545 6,800 7,086 7,355 7,612 Net Income (189) Financial Analysis

30 Profitability Ratios Year Average Peer's Average Return on Assets 0.80% 0.20% -1.10% 0.00% 1.78% Return on Equity 3.40% 0.70% -4.30% -0.10% 5.07% Operating Margin 16.20% 13.80% 11.80% 13.90% 7.64% Profit Margin 2.30% 0.50% -2.80% 0.00% 6.84% Efficiency Ratios Year Average Peer's Average Total Asset Turnover Receivables Turnover Liquidity Ratios Year Average Peer's Average Current Ratio Quick Ratio Financial Leverage Debt/Equity Financial Analysis

31 DuPont Analysis Peer's Average ROE 3.40% 0.70% -4.30% 5.07% Profit Margin 2.30% 0.50% -2.80% 6.84% Total Asset Turnover Financial leverage Financial Analysis

32 Terminal Discount Rate 9.00% Terminal FCF Growth Rate 2.00% Discount Rate Terminal FCF growth rate 1% 1.50% 2% 2.50% 3% 7.5% % % % % % % Valuation-DCF

33 DCF Valuation of Calpine Coporation (CPN) Terminal Discount Rate= 9.00% Analyst: Hongda Zhang Terminal FCF Growth= 2.00% Date: 5/27/2012 Year 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenue % Grow th 4.00% 4.20% 4.50% 5.00% 6.50% 5.90% 5.00% 4.00% 3.00% 2.00% Operating Income Operating Margin 15.72% 17.52% 18.32% 19.10% 19.00% 18.80% 18.50% 18.50% 18.50% 18.50% Interest and Other Interest % of Sales 13.15% 13.15% 13.15% 12.00% 11.50% 11.20% 10.00% 9.00% 9.00% 9.00% Taxes Tax Rate 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% 11.00% Net Income % Grow th 77.18% 23.63% 44.20% 12.50% 7.31% 17.43% 16.24% 3.00% 2.00% Add Depreciation/Amort % of Sales 8.00% 8.00% 8.00% 7.50% 7.00% 6.00% 5.00% 5.00% 5.00% 5.00% Plus/(minus) Changes WC (9.75) (19.60) (21.89) (44.47) (61.57) (59.18) (52.66) (43.82) (33.85) (23.02) % of Sales (0.14%) (0.27%) (0.28%) (0.55%) (0.72%) (0.65%) (0.55%) (0.44%) (0.33%) (0.22%) Subtract Cap Ex Capex % of sales 11.04% 13.05% 10.00% 7.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Free Cash Flow % Grow th 89.11% % % 25.64% (0.56%) 9.20% 17.69% 3.80% 2.79% NPV of Cash Flows % NPV of terminal value % Terminal value Projected Equity Value % Free Cash Yield 6.86% Free Cash Flow Yield 0.39% Terminal P/E Terminal EV/EBITDA 9 Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA Debt Cash 1252 Shares Outstanding 478 Cash/share 2.62 Current Price Total Assets Implied equity value/share Debt/Assets 42.00% Upside/(Downside) to DCF 0.06 Working Capital % of Growth 11%

34 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 Higher than Industry and S&P500 Valuation-Multiple

35 Multiples High Low Median Current Target Multiple Target E, S, B, etc/share Target Price P/Forward E P/S P/B P/EBITDA P/CF Average Price year data. Currently trading high. Expect mean reverse Valuation-Multiple

36 Valuation Method Target Price Weights Weighted Value P/Forward E P/S P/B P/EBITDA P/CF DCF Value per Share $ Target Price: $18.90 Current Price: $16.91 Upside Potential : 11.8% Recommendation: Hold Valuation