advisory board presentation spring 2017...advisory board presentation spring 2017 july 26, 2017...
TRANSCRIPT
All figures shown in $CAD millions except share price or otherwise noted
Advisory Board Presentation Spring 2017
July 26, 2017
Note: all figures in C$ unless otherwise specified
Agenda
Fund Overview Historical Performance
Macro Analysis Investment Decisions
– Impact on Portfolio Learning and Growth
Appendices
2
Fund Overview
3
Overview
1 Weight will change according to the portfolio allocation for the period
Purpose
“To provide students with an investment management experience in an institutional setting. Specifically, it will provide
students hands-on-training in equity valuation and portfolio management with guidance from industry experts and with
supervision by finance faculty.”
Objective “To generate long-term growth of the Fund’s assets. The Fund
will invest in a broadly diversified portfolio of Canadian and U.S. equities that may provide capital gains and / or income.”
Benchmark 50% S&P/TSX Total Return Index and 50% S&P 500 Total Return Index1
The Fund operates under a value investing methodology, with ~C$300,000 AUM
4
Spring 2017 SAF Student Investment Fund Team
Team Picture
Winter 2016 New Junior
Analyst Program
Spring 2014 New Analyst
Program .
Fall 2014 Faculty
Discussions & Assigned Marks
Spring 2015 Quarterly EPS
Estimates
Fall 2013 Course Credit & Enter into U.S.
Fall 2015 Portfolio Analytics
& New Screen
L-R (Back): Alex Vegh, Billy Lam, Zao Chen, Raghav Gupta, David Duan, Raymond Si, Tony Liu L-R (Middle): Justin Lao, Sami Ahmed, Thomas Mircea, Timour Petrov, Nicholas Achkarian, Fineas Tatar, Kevin Osei, Jasper Lam, Raza Abbas, John Guttmann, Shivam Jadoo L-R (Front): Muneeb Ahmed, Jiacheng Fan, Ryan Korn, Joy Yang, Tina Jin, Ryan Korn, Lily Lam, Joy Yang, Julia Lin, Michelle Li, Bianca Vasu, Qhalisa Khan, Hellen Xia, Flora Chan, Ross Lin, Jimmy Zhou Not Pictured: Winnie Cho, Hamza Yasin
5
Winter 2016 External Investor
Presentation
Winter 2017 Investment Conference
Fall 2016 Guest Speakers
& Mentor Sessions
Spring 2017 Team Structure
Portfolio Managers and Analysts
Faculty
Andrew Ecclestone (Healthcare, Energy & Utilities), Garvin Blair (Materials, Financials & TMT), Ranjini Jha (Consumer & Industrials)
PM: Portfolio Manager Inactive sector: Utilities, Materials
Energy
Senior PM & CSO Jiacheng Fan
Senior Analysts
Michelle Li, Ethan Tang
Junior Analysts Jimmy Zhou, Lily Lam
Real Estate
Junior PM Muneeb Ahmed
Senior Analyst Timour Petrov
Junior Analysts
Raghav Gupta, Raymond Si
Industrials
Senior PM & CIO Sami Ahmed
Senior Analysts
Uday Sandhu, Winnie Cho
Junior Analysts David Duan, Hamza Yasin, John Guttmann, Thomas
Micrea
Materials
Junior PM Joy Yang
Senior Analyst
Clifford Fang
Junior Analysts Bianca Vasu, Shivam Jadoo
TMT
Junior PM Nicholas Achkarian
Senior Analyst
Kevin Osei
Junior Analysts Fineas Tatar, Jasper Lam, Qhalisa Khan, Raza Abbas
Financials
Junior PM Muneeb Ahmed
Senior Analysts
Alex Vegh
Junior Analysts Tina Jin, Tony Liu
Consumers
Junior PM Billy Lam
Junior Analysts
Flora Chan, Julia Lin
Healthcare
Senior PM & CEO Ryan Korn
Senior Analyst
Justin Lao
Junior Analysts Hellen Xia, Ross Lin,
Zao Chen
6
Key Deliverables
Junior Analysts Senior Analysts Portfolio Managers
Sector Macro Outlook & Holdings Updates
Assist Senior Analysts
Stock Pitch I
Stock Pitch II
Sector Macro Outlook & Holdings Updates
Sector Allocation and Trading Decisions
Routine portfolio monitoring for material changes to price and/or thesis
7
Investment Process
1 Macro-outlook driven capital deployment strategy
2
Faculty-led screen (by sector) for Canadian and US companies, which have positive Levered Free Cash Flow since 2008 and a market capitalization greater than C$300mm
3 Exclude any screened companies which do not meet the Fund’s restrictions
4 Select and apply relevant industry metrics for each company, comparatively
rank all stocks to select “Top-Four”
5 Select one company from the top four, conduct detailed research to
determine the recommendation (“Buy”, “Sell”, or “Hold”)
8
Investment Constraints
Restrictions Constraints
Asset Class Canadian & U.S. Equities
Market Capitalization Above C$300 mm
Debt Rating Greater than ‘B’ (DBRS)
Cash & Equiv Weight 0-25%
Total Securities 10-25
Sector Weight Maximum 25%
Stock Weight Maximum 10%
Ownership of Shares
Less than 5% of average daily
trading volume over 10-day
period
9
Selling Discipline
We will review our holdings if…
Fundamental
Price Movement
Material change in the business or in the industry
Exceed 25% capital gain from the time of purchase or
Exceed 15% capital loss from the time of purchase or
Exceed 25% decline in price from the highest price attained since initial purchase
Valuation Reaches previously established 12-month target price
10
Historical Performance
11
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Fund NAV Benchmark
Portfolio Returns Including Cash
*Benchmark calculated as 50% S&P/TSX, 50% S&P 500 TRI Spring 2017 refers to May 1, 2017 – July 19, 2017
Net Asset Value Including Cash
Total Returns Fund NAV NAV Return Benchmark* S&PTSX + S&P500
Comp. Return Relative Return
Jul ‘12 - Apr ‘13 10.33 3.34% 9.28% 6.79% -5.94%
May ‘13 - Apr ‘14 12.26 18.64% 20.79% 17.24% -2.15%
May ‘14 - Apr ‘15 12.72 3.75% 9.55% 6.63% -5.79%
May ‘15 - Apr ‘16 11.01 -13.44% -5.12% -7.72% -8.33% May ‘16 – Apr ‘17 13.25 20.35% 21.50% 18.51% -1.16%
Spring ‘17 13.22 -0.23% -2.64% -3.15% 2.41% Since Inception 13.22 32.20% 62.30% 41.40% -30.10%
16.23
13.22
12
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Fund NAV Benchmark
15.71
16.23
Portfolio Returns Excluding Cash
*Benchmark calculated as 50% S&P/TSX, 50% S&P 500 TRI Spring 2017 refers to May 1, 2017 – July 19, 2017
Net Asset Value Excluding Cash
Total Returns Fund NAV NAV Return Benchmark* S&PTSX + S&P500
Comp. Return Relative Return
Jul ‘12 - Apr ‘13 10.49 4.90% 9.28% 6.79% -4.38%
May ‘13 - Apr ‘14 13.08 24.69% 20.79% 17.24% 3.90%
May ‘14 - Apr ‘15 13.63 4.20% 9.55% 6.63% -5.35%
May ‘15 - Apr ‘16 11.55 -15.26% -5.12% -7.72% -10.14% May ‘16 – Apr ‘17 15.65 35.50% 21.50% 18.51% 14.00%
Spring ‘17 15.71 0.38% -2.64% -3.15% 3.02% Since Inception 15.71 57.10% 62.30% 41.40% -5.20%
13
Portfolio Characteristics
1 Monthly 5% VaR
All returns are listed on a monthly basis
With Cash Benchmark Without Cash
Average Portfolio Return 0.50% 0.83% 0.81%
Portfolio Standard Deviation 2.48% 2.17% 3.30%
Portfolio Beta 0.82 1.12
Portfolio Alpha -0.22% -0.10%
Sharpe Ratio 0.13 0.30 0.19
Value-at-Risk1 -$10,728 -$10,597
Number of Positive Returns 37 41 40
Number of Negative Returns 23 19 20
Historical
14
Portfolio Characteristics
As of July 19, 2017
SIF S&P TSX S&P 500 LTM Price / Earnings 25.0x 26.0x 26.8x
LTM Price / Book 3.2x 2.4x 3.2x
LTM Price / Free Cashflow 20.7x 24.7x 23.9x
Dividend Yield 2.80% 2.42% 1.98%
PEG 1.2x 2.3x 1.5x
Multiples
15
Symbol Company Name Total Value CADSUPN Supernus Pharmaceuticals $23,517 $29,605CCA Cogeco Communications $18,567 $18,567CTC.A Canadian Tire Corporation $18,556 $18,556SU Suncor Energy $17,892 $17,892MAS Masco Corporation $15,608 $19,648D.UN Dream Office REIT $14,859 $14,859NA National Bank of Canada $14,015 $14,015CDNS Cadence Design Systems $11,479 $14,450CR Crane Corporation $11,239 $14,148CALM Cal-Maine Foods $10,665 $13,426BIP Brookfield Infrastructure $9,550 $12,022GS Gluskin Sheff + Associates $9,347 $9,347SPR Spirit AeroSystems $9,149 $11,517KMP.UN Killam Apartment REIT $8,820 $8,820IPGP IPG Photonics Corporation $7,252 $9,129BNE Bonterra Energy Corp $3,576 $3,576Total Equity Value $229,578Cash (CAD) $70,130Total Portfolio AUM $299,708
SUPN 13%
CCA 8%
CTC.A 8%
SU 8%
MAS 9% D.UN
6% NA 6%
CDNS 6%
CR 6%
CALM 6%
BIP 5%
GS 4%
SPR 5%
KMP.UN 4%
IPGP 4%
BNE 2%
Current Holdings by Value (Pre-Trade July 19, 2017)
CAD/USD = 1.259 Weightings include cash
Portfolio comprised of 16 securities
16
19%14%
10% 8% 8% 7% 6% 4%0% 0%
9% 8%
1% 3%
35%
20%
5% 4%
12%
3%
10%
25%
15%
3%
14%
6%
12%9%
3% 3%
0%5%
10%15%20%25%30%35%40%
Industrials TMT Healthcare REITs Financials Energy ConsumerDiscretionary
ConsumerStaples
Materials Utilities
SIF S&P/TSX S&P 500
Large31%
Mid44%
Small25%
USD54%
CAD46%
Portfolio Breakdown (Pre-Trade July 19, 2017)
Source: Capital IQ
Cash23%
Industrials19%
TMT14%Consumer
Discretionary6%
Healthcare10%
REITs8%
Consumer Staples
5%
Financials8% Energy
7%
17
(20.0%)(10.0%) 0.0% 10.0% 20.0% 30.0%
Healthcare
TMT
Industrials
Financials
REITs
Consumer Staples
Energy
Consumer Discretionary
S&P 500 S&P TSX SIF
(20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0%
CTC.A
BNE
SU
KMP.UN
CALM
GS
BIP
D.UN
CR
NA
MAS
SPR
CDNS
CCA
IPGP
SUPN
Sector and Security Returns (Spring 2017)
Note: Returns calculated between May 1, 2017 – July 19, 2017
Total Security Returns Total Sector Returns
18
19
Sector Returns and Weights (Spring 2017)
Note: Returns calculated between May 1, 2017 – July 19, 2017 Relative weights as of July 19, 2017
Sector Allocation
(20.0%) (15.0%) (10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0%
Industrials
REITs
Healthcare
Consumer Staples
Consumer Discretionary
TMT
Energy
Financials
Relative Weight Benchmark Return
20
Attribution Analysis (Spring 2016 – Spring 2017)
Note: Returns calculated between May 1, 2016 – July 19, 2017 Relative weights as of July 19, 2017
(10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0%
Healthcare
TMT
Materials
Energy
Utilities
Industrials
REITs
Consumer Staples
Consumer Discretionary
Financials
Total Portfolio
Total Attribution Interaction Selection Allocation
Macroeconomic Overview
21
Overall Market Outlook
Divergent messages sent by bond vs. equity markets in both Canada and the U.S. Yield curve continues to flatten in both Canada and the U.S. Equity markets reaching record territory, heavily driven by expected economic expansions
from US Multiple expansion as rally exceeds underlying profit growth
Volatility Index persisted under 10, remains at record low territory
Source: CNBC, US Federal Reserve, Bank of Canada
Recent Themes
Our Take
We remain cautious about recent equities rally – should converge to underlying profitability growth in the long run
Minor weakness in this positive economic backdrop is more likely to be bought, a structural change would be a warning signal
Look for businesses with strong fundamentals and not overly dependent on the expected policy changes
Overall we are cautious on capital deployment due to the elevated valuations
22
U.S. Macroeconomic Overview
Source: CNBC, Reuters, BLS, Bloomberg
Continued strength in the US Labour market Payrolls increased 222,000 (vs. 179,000 expected) in June after disappointing May Headline unemployment rate at historical low (4.4% in June), inline with 2007 data U-6 unemployment rate (8.6% in June) still slightly above pre-crisis levels
Consumer spending shows signs of strength Consumer confidence index up to 118.9 in June, above pre-crisis level Retail sales $473.5Bn (down 0.2% m/m)
Fed Fund Rate increased by 25bps to 1.00%-1.25%
Recent Themes
Our Take
We expect the Fed to be more cautious in raising interest rates going forward Strong economic growth in US, but the elevated security valuations continues to be the
main concern Cautious as all major economic metrics have met or exceed pre-crisis level in 2007
We are bullish on the US economic development but concerned on valuation
23
U.S. Macroeconomic Overview
Source: US Federal Reserve, Capital IQ
10 Year S&P 500 Forward P/E
10 Year US Treasury Bond 10Yr minus 2Yr Yield Spread
8x
12x
16x
20x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Forward P/E Average
0.0%
1.0%
2.0%
3.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
24
Canada Macroeconomic Overview
Evidence of GDP growth fairly mixed Q1 growth mainly driven by higher household spending Decline in aircraft and transportation equipment exports
Household debt continues to trend to record levels (~169% of disposable income) Foreign buyer tax cooling off the housing market First federal interest rate hike in 7 years
Increased policy interest rate by 25bps, to 0.75% Total CPI inflation rate at 1.3% for May, due to food price competition and electricity rebate
Source: Statscan, Bank of Canada, Scotiabank Economics
Recent Themes
Our Take
Household debt levels raise question of consumption contribution to economic growth Bank of Canada likely to hold policy rate steady at this level Negative sentiment largely priced into the cyclical sectors
We are neutral on the Canadian economy
25
Canada Macroeconomic Overview
Source: Capital IQ, Bank of Canada
10 Year S&P/TSX Composite Index Forward P/E
10 Year BoC Benchmark Bond 10Yr minus 2Yr Yield Spread
7x
10x
13x
16x
19x
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Forward P/E Average
-0.5%
0.5%
1.5%
2.5%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
26
Macroeconomic Outlook by Theme / Sector Key Theme / Sector
Technology: Bullish
Software (Neutral) Growth in mobile applications Increase in focus on
cybersecurity for the cloud Multiples at highs
Semiconductor (Neutral) New end-markets being
created for specialized chips (Artificial Intelligence)
Consolidation Multiples very high
Internet (Bullish) Concentration of market
among dominate players (FB, Google, Priceline)
Valuations reasonable
Telecom: Bullish
Cord cutting continues to pressure cable companies, leading to consolidation
Altice US and Charter are aggressively buying up smaller players to get better negotiating leverage for content costs
New FCC Chair is anti-net neutrality, open to wireless consolidation
Skinny bundles being rolled out, lowering ARPU of a cable subscriber
5G is on horizon
Industrials: Bullish
Increased investment need / spending in infrastructure
Room for further growth in residential construction
Utilization of data analytics and robotics to enhance efficiency
Increased air travel & aircraft demand Shift to lower cost fuel
efficient planes
Rising US Defense budget National Defense
Authorization Act
27
Macroeconomic Outlook by Theme / Sector Key Theme / Sector
Healthcare: Neutral
Continued growth in spending, especially in the US
Innovation-friendly regulations in pharma FDA expediting drug
approval process for some drugs
Estimated $5 billion in future research funding with 21st Century Cure Act
Regulatory uncertainties, particularly surrounding issues of price gouging and the ACA
Energy: Neutral
OPEC meeting May 25th Current production cut
level maintained
US Supplier concern Continuously increasing
rig count
Growing demand Low gasoline prices
Executive order to rescind
energy directives improves non-renewable opportunities
– Continued focus on America-first energy policies
Consumer: Neutral
Discretionary (Bearish) Rising interest rates likely to
reduce spending despite strong recent macro data
Tax cuts unlikely to reach promised 15% as negotiators aiming for tax rate to be 20-25%
Declining foot traffic in retail centers
Staples (Neutral) Trade policy tariffs will hurt
overseas manufacturers Large proposed budget cuts
for Department of Agriculture
28
Macroeconomic Outlook by Theme / Sector Key Theme / Sector
Materials: Neutral
Chemicals: Bullish Strong U.S. housing and
construction, coupled with EV adoption bode well for specialty chemicals
Ag: longer-than expected seed discounting due to weak crop prices
Forestry: Bearish Precious Metals: Bullish
Political uncertainties (i.e. Trump Admin. and North Korean missile tests) supports gold price
Demand hinges on Trump’s ability to deliver his plans
Base Metals: Neutral Supported by U.S’ and
China’s infrastructure plans, partially offset by cooling Chinese property market
REITs: Neutral
US Office: Neutral Demand rising in traditionally
2nd tier cities Rent stagnant in core markets US Residential: Bullish Rent up 3.8% in 2016 Mid-sized markets/cities
experiencing growth Canadian Office: Neutral Majority of demand in core
areas Construction slowing Canadian Residential: Bearish Meteoric rise in price of core
markets unsustainable Rate hike may cool activity
Financials: Neutral
US Banks: Neutral Hawkish Fed combined with
weak inflation expectations compress NIM
Deregulation provide tailwind by enabling banks to earn higher returns
Canadian Banks: Neutral Rising rates and increasing
inflation expectations widen yield curve and increase NIM
Downside risk from Canadian RE and levered consumer
Insurance: Neutral Continues to exhibit soft
characteristics Asset Management: Bearish • Secular headwinds from
passive and alternative sol’ns
29
Investment Decisions
30
Investment Pitches for Spring 2017
Buy Recommendations
Hold Recommendations
Sell Recommendations
31
Buy: Tourmaline Oil Corp. (TSE:TOU)
Market Statistics
Business Overview
Canadian intermediate natural gas exploration and production company focused on long-term growth through an aggressive exploration, development, production and
acquisition program in the Western Canadian Sedimentary Basin.
5 Year Performance
*(MBoe/d) **(MMboe)
Share Price (C$) 26.70 Market Cap ($M) 7,251 EV ($M) 8,637 Debt ($M) 1,358 P/LTM E 70.7x P/NTM E 16.2x EV/LTM EBITDA 10.2x EV/NTM EBITDA 6.0x ROE 1.8% D/E 19.7% Dividend Yield - Beta (5 yr) 1.15
Revenue by Segment
-50%
-30%
-10%
10%
30%
50%
70%
90%
110%
2012 2013 2014 2015 2016NYMEX:^NG TSX:TOU S&P/TSX Capped Energy Index
4% 21% 38%
8%
20%
67% 73% 76% 82% 58%
-20%0%20%40%60%80%100%120%
$0$200$400$600$800
$1,000$1,200$1,400
FY2012 FY2013 FY2014 FY2015 FY2016
Revenue Peers EBITDA Margin Peers Net Income Margin
Net Income Margin EBITDA Margin
Main Assets Montney Peace
River Deep Basin
Prod. 61 15 160
Res. 173 45 1,353
Wells 275 170 2,944
Natural Gas 76%
Oil 18%
NGL 6%
32
Investment Thesis High Netbacks Strong Balance Sheet Exceptional Management Team
Investment Risks Management of Growth Geographic Diversification Hard to Reduce Operation Costs Further
Valuation
EPS Q1 Q2 Q3 Q4 2016 $-0.17A $-0.34A $0.10A $0.24A 2017 $0.37A $0.38E $0.40E $0.43E
Current: $26.70 Target: $33.85 Upside: 21%
EPS Estimate
Buy: Tourmaline Oil Corp. (TSE:TOU)
$0.24
$0.37
$0.13
$0.26
$0.39 $0.41 $0.42
$0.38 $0.40 $0.43
$0.00$0.05$0.10$0.15$0.20$0.25$0.30$0.35$0.40$0.45$0.50
Q42016
Q12017
Q22017
Q32017
Q42017
EPS Actual Consensus SIF Est.
$10 $15 $20 $25 $30 $35 $40 $45
NAV Model
EV/LTM EBITDAX
EV/2P
P/Operating CF
33
Buy: Slate Office REIT (TSE:SOT.UN)
Market Statistics
Investment Thesis Value-Oriented Management Team - Management demonstrates value
investing principles through buying below replacement cost (margin of safety), buying non-trophy assets (out of favour/contrarian), and redeveloping properties (owner-operators) Opportunity for Organic/Acquisitive Growth - Portfolio rent is ~8% below
market rents – redevelopment of properties and professionalized property management will increase portfolio occupancy and rents Slate Office owns ~3% of management’s estimated TAM – successful execution
of growth strategy will close valuation gap
Canada’s only REIT focusing on office properties located in tier-two cities, such as Winnipeg and Halifax, and suburbs of tier-one cities, such as
Etobicoke and Markham. Share Price (C$) 7.84
Market Cap ($MM) 488
Net Debt ($MM) 668 D/E 1.47x P/AFFO LTM 13.6x P/AFFO NTM 11.0x P/NAV 0.95x Dividend Yield 9.6% 5% Monthly VaR (8.6%) Beta (3 yr) 0.43
NOI By Geography
-30%
-20%
-10%
0%
10%
20%
11-3-2014 3-3-2015 7-3-2015 11-3-2015 3-3-2016 7-3-2016 11-3-2016 3-3-2017 7-3-2017
Slate Office REIT TSX Capped REIT Index
Performance of Slate following FAM REIT Acquisition
34
Buy: Slate Office REIT (TSE:SOT.UN)
Investment Risks
Valuation
NAV Model (0% weighting), P/NAV (50% weighting), P/NTM AFFO (50% weighting)
Macroeconomic Risk – Mitigated by <3% GLA exposure to the energy sector Dividend Cut - AFFO payout ratio forecasted to be above 100% until Q2
2018 due to transitional vacancy filled in Q4 2017 Interest Rates – 76.8% of debt is floating because covenants allow for more
redevelopment Financing – Recent bought deal syndicate discounted warrants by 5%
Current: $7.84 Target: $8.80 Upside: 12%
AFFO Estimate
35
Buy: Stantec Inc. (TSE:STN)
Market Statistics
Business Overview
Provider of engineering consulting services for projects in North America and globally
5 Year Performance
Note: Construction segment was inherited from MWH, as of 2016 and are only involved in water projects.
Share Price (C$) 32.03 Market Cap ($MM) 3,606 EV ($MM) 4,450 Net Debt ($MM) 844 P / LTM E 25.9x P / NTM E 15.7x EV / LTM EBITDA 12.9x EV / NTM EBITDA 10.2x ROE 7.9% D / E 0.23 Dividend Yield 1.4% Beta (5 yr) 1.37
Revenue Segments
Buildings 26% Airports, Commercial, Education, Healthcare
Environmental 21% Geo Surveying, Traffic Analysis
Energy 14% Mining, Oil & Gas, Renewable Power Infrastructure 32% Roads, Bridges, Transit & Railways
Water 25% Waterpower & Dams Wastewater Management, Water Treatment
48%
27%
10%
15%
US CanadaGlobal Construction
-50%
0%
50%
100%
150%
200%
2012 2013 2014 2015 2016 2017
STN S&P Industrials Peers
91% 100%
91%
#1 Overall Architecture/Engineering Firm Acquired MWH – #1 International Design Firm in Sewer & Waste Water Treatment
36
$15 $20 $25 $30 $35 $40 $45 $50
EV/EBITDA NTM
P/E LTM
P/E NTM
DCF Gordon Growth
DCF Exit Multiple
52-Week
Current Price Implied Price
Buy: Stantec Inc. (TSE:STN) Investment Thesis
Market Leadership: Able to capitalize on infrastructure growth in North America
Vertical Integration: Multiple entry points into project lifecycles
Water Infrastructure: Stantec is at the forefront as global demand increases
Investment Risks Integration Costs: As a serial acquirer,
exposed to potential unexpected costs Competitive Bidding: Overall increase in
competitors could lead to lower margins or even loss of future contracts
Valuation
Current: $32.03 Target: $37.50 Upside: 17%
EPS Estimate
EPS Q1 Q2 Q3 Q4 2016 $0.32A $0.20A $0.43A $0.26A 2017 $0.28A $0.39E $0.47E $0.40E
0.49 0.55
0.51
0.39
0.47 0.4
Q2 2017 Q3 2017 Q4 2017
Consensus EPS SIF Estimate
37
Buy: Celestica Inc. (TSE:CLS)
Market Statistics
Business Overview
Delivers supply chain solutions to customers in the Communications, Consumer, Diversified, Servers and Storage end markets.
5 Year Performance
Share Price (US$) 13.61 Market Cap ($B) 2.4 EV ($B) 1.9 Debt ($MM) 227.3 P/LTM E 15.4x P/NTM E 10.5x EV/LTM EBITDA 6.5x EV/NTM EBITDA 5.3x ROE 5.0% D/E 0.1 Dividend Yield N/A Beta (5 yr) 0.4
Revenue Breakdown Supply Chain Services
Precision Machining
After-Market Services
Logistics & Fulfillment
Mfg. Services
Joint Design & Mfg.
Design & Engineering
56.3% 14.1%
11.2%
12.1%
6.4% Communications
Consumer
Diversified
Servers
Storage
-20%
20%
60%
100%
140%
180%
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17Celestica Inc. (TSX:CLS) EMS Index S&P 500
38
Buy: Celestica Inc. (TSE:CLS) Investment Thesis
Current growth in ATS and CCS End Markets Centers of Excellence Locations Diversification of Current End Markets Existing Global Presence
Investment Risks Loss of Limited Customers Onex Ownership Competitive Pricing in Industry
Valuation
EPS Q1 Q2 Q3 Q4 2016 $0.18A $0.25A $0.37A $0.15A 2017 $0.16A $0.20E $0.21E $0.22E
Current: $13.61 Target: $18.10 Upside: 33%
EPS Estimate
39
Proposed Portfolio Actions for Spring 2017
Liquidate/Reduce Positions
Hold Positions
40
Sell: Supernus Pharmaceuticals Inc. (NASDAQ:SUPN)
Market Statistics
Recent News Jul 2017 – SPN 812 to enter phase III trials as a non-stimulant treatment for ADHD in
patients 6-12 years of age Jun 2017 – Supernus announces that its partner Shire plc has received approval for
ADHD drug Mydayis; Shire to pay Supernus royalty on net product sales Apr 2017 – Received final FDA approval for Trokendi XR for migraine prophylaxis in
adults and adolescents 12 years of age and older Q1 2017 EPS $0.19 (+138%); revenue $56.4M (+31%); operating income $16.8M (+161%) Mar 2017 – Supernus settles with Actavis and Zydus for Trokendi XR patent infringement
Specialty pharmaceutical company that develops and commercializes products for central nervous system diseases. Its current neurology product portfolio is supported by
a strong drug pipeline of psychiatry products.
Historical Performance Since Purchase
Source: Capital IQ
Share Price (US$ 42.40 Market Cap ($MM) 2,126.9 EV ($MM) 2,043.1 Debt ($MM) $3.3 P/LTM E 23.3x P/NTM E 38.6x EV/LTM EBITDA 31.1x EV/NTM EBITDA 19.1x ROE 63.8% D/E 1.6x Dividend Yield N/A Beta (5 yr.) 1.18
Return Profile Purchase Date Jul-15; May-17 Purchase Price $20.40; $33.43 Current Price $42.50 Shares Owned 540 Market Value $22,896
Return – HPR 90.4% Return – LTM 101.9% Return – YTD 67.9%
5% Monthly VaR -11.9% 10% Monthly VaR -7.9%
17%
6%
117%
-50%-25%
0%25%50%75%
100%125%150%
S&P 500 S&P 500 Healthcare NASDAQ:SUPN
41
Investment Thesis Strengthening current portfolio Promising psychiatry pipeline Forecasted prescription increase from use of
Trokendi XR for migraine prophylaxis
EPS Estimates
FDA approval risk Downward pressure on
prescription prices due to creation of generics and potential Medicaid cutbacks
Market anticipates significant and potentially unattainable growth moving forward, as evidenced by high trading multiples
Valuation
EPS Q1 Q2 Q3 Q4 2016 $0.08 $0.20 $1.18 $0.26 2017 $0.19 $0.28E $0.40E $0.52E
Current: $42.50 Target: $40.89 Downside: -3.79%
Investment Risks
Sell: Supernus Pharmaceuticals Inc. (NASDAQ:SUPN)
0.08 0.14 0.08 0.20
1.18
0.26 0.19
- - -0.03 0.06 0.08 0.13 0.14 0.16 0.18 0.28
0.40 0.52
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
Actuals SIF Estimate
$0 $10 $20 $30 $40 $50 $60
DCF(Perpetuity)
DCF (ExitMultiple)
Comparables
Target Price Current Price
42
Sell: Cadence Design Systems (NASDAQ:CDNS)
Market Statistics
Recent News Announced three new products in Q1 2017: Xcelium, Protium S1, and Pegasus.
The first two are Verification type software and Pegasus is a Digital Signoff type software.
Company expressed its interest to pursue opportunities in high growth areas such as autonomous vehicles, IT cloud infrastructure, and the Internet of Things
Elected Maggie Wilderotter to the Board of Directors in Q2 2017. She is a former CEO of Frontier Communications and Senior VP of Microsoft. Concurrently a board member for Costco and HP.
Develops, sells, leases, and licenses electronic design automation (EDA) software, emulation and prototyping hardware, verification intellectual property (VIP), and design
intellectual property (IP) for semiconductor and electronics systems industries worldwide.
Return Since Purchase
Source: Capital IQ, Company Website
Share Price (US$) 35.09 Market Cap ($MM) 9,876 EV ($MM) 10,022 Net Debt ($MM) 146 P/LTM E 45.1x P/NTM E 25.5x EV/LTM EBITDA 24.1x EV/NTM EBITDA 16.0x ROE 21.3% D/E 3.3% Dividend Yield 0% Beta (5 yr) 1.06
Return Profile
-10%
0%
10%
20%
30%
40%
Cadence Design Systems S&P 500 Technology Index
Purchase Date 6-Dec-16
Purchase Price ($US) $ 25.69
Current Price $ 35.09
Shares Owned 240
Market Value $ 8,422
Return Since Purchase 36.6%
Return - TTM 26.2%
Return - YTD 27.5%
43
Sell: Cadence Design Systems (NASDAQ:CDNS) Investment Thesis
SDE strategy enables access to new vertical market segments: high growth areas including AI, IT Cloud Infrastructure, and the IOT
Strong OCFs and margins as 90% of revenue is recognized on recurring basis
Investment Risks Competition from Synopsys which earns nearly
$2.5B in revenue compared to $1.9B for Cadence
Overseas operational segments due to potential exchange rate fluctuations
Integration of technology
Valuation
Current: $35.09 Target: $31.02 Downside: 11.60%
EPS Estimate
- $10 $20 $30 $40 $50 $60 $70 $80 $90
DCF (Exit Multiple)
DCF (Gordon Growth)
Price/Earnings
EV/EBITDA
EV/EBIT
EV/Revenue0.71 0.67
0.89
1.03 0.96
1.03
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
FY 2016A FY2017E FY2018E
Actual SIF Estimate Consensus est.
44
Sell: Gluskin Sheff + Associates (TSE:GS)
Recent News
Market Statistics
Return Profile
Valuation weighting – 20% for all
November 2016 – Outlined increased marketing initiatives on earnings call – little
to no ROI December 2016 – Litigation decision expected in mid-2017 Q2 2017 Earnings (three months ended December 2016)
Diluted EPS of $0.78 in Q2 2017 vs. consensus of $0.75, $0.61 PY $210M positive net investment performance Flat fund flows from HNWI/Institutions – Outflows in 7 of last 8 quarters Average base management fee fell to 1.23%, 1.30% PY
Canadian wealth management firm that manages investment portfolios for High Net Worth Individuals and Institutional investors.
Performance Since Purchase
Share Price (C$) 17.41 S/O (mm) 29.95
Market Cap ($MM) 521.2
Net Debt ($MM) (70.1)
EV ($MM) 451.1
EV / EBITDA 6.9x
P / E (NTM) 12.9x
Dividend Yield 6.1%
Beta (5 Y) 0.94
Purchase Date 12/9/2015 Purchase Price $19.59
Current Price $17.41 Shares Owned 540
Market Value $9,401.40 Return - Purchase -4.7% Return - LTM 6.2% Return - YTD -1.9%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Dec-2015 Mar-2016 Jun-2016 Sep-2016 Nov-2016 Feb-2017 May-2017GS S&P/TSX S&P/TSX Financials
-14.04%
18.15%
21.58%
45
Sell: Gluskin Sheff + Associates (TSE:GS)
Investment Risks
Valuation
Investment Thesis Uncertainty from the lawsuit
have subsided and stock price has rebounded Strong track record to
generate investment return Differentiated position Acquisition of Blair Franklin,
cross selling opportunities
EPS Estimate
Source: Capital IQ, quarter reports
- 5 10 15 20 25 30 35 40
DCF (EM)
DCF (GG)
EV/AUM
EV/EBITDA
P/E
CurrentImplied
Uncertainty from the lawsuit have subsided and stock price has rebounded Declining active asset management industry Investors withdrawing – real estate development
– Difficult to increase net flows Unpredictable performance fee Economic downturns cause low returns on investments
Current: $17.43 Target: $19.00 Implied Upside: 9.0%
46
Limit Sell ($20.50): Dream Office REIT (TSE:D.UN)
Market Statistics
Recent News
Invests in office properties across Canada, with approximately 23 million square feet of gross leasable area
Performance Since Purchase
Share Price (C$) $19.75 Market Cap ($B) 2.0 EV ($B) 4.5 Debt ($B) 2.5 P/LTM FFO 6.7x P/NTM FFO 9.6x EV/LTM EBITDA 16.1x EV/NTM EBITDA 16.1x ROE (27.59%) D/E 0.87 Dividend Yield 4.96% Beta (5 yr) 0.59
Return Profile Purchase Date Dec 2013 Purchase Price ($US) $20.35 Current Price $19.75 Shares Owned 740 Market Value $14,615
Return Since Purchase 2.78% Return – TTM 9.92% Return – YTD 6.45%
5% Monthly VaR (7.6%) 10% Monthly VaR (4.8%)
(60%)
(40%)
(20%)
-
20%
40%
Dec-13 Dec-14 Dec-15 Dec-16D.UN S&P/TSX TSX REITs
June 2017 Announced sale of $1.7B of Properties, with $1.4B Sale to Kingsett, including interest
in Scotia Plaza Q2 Strategic Plan Update: Successfully revised distribution and suspended DRIP to
eliminate dilution, and obtain 800M revolver creditor to boost liquidity Q1 2017 (three months ended March 31, 2017): $0.59 FFO per share (-13% YoY) Occupancy rate down at 86.5% (88.4% PY) NAV at $22 (5.65% weighted avg. cap rate)
47
Limit Sell ($20.50): Dream Office REIT (TSE:D.UN) Investment Thesis
Strategic plan tackles debt through sale of assets, DRIP suspension
“Value Crystallization” of Private Market 2nd – tier assets
Trading at discount to NAV
Investment Risks Low cap rates in major markets hinder growth
through acquisitions Declining non-core occupancy Rising interest rate environment Questionable management
Valuation
Current: $19.75 Target: $24.45 Upside: 23.8%
FFO Estimates
$10 $20 $30 $40 $50
52 - Week Range
NAV (Cap: 5-8%)
P/FFO NTM
P/AFFO NTM
Current Price Target Price
48
Investment Decisions – Impact on Portfolio
49
Symbol Company Name Total Value CADSUPN Supernus Pharmaceuticals $23,517 $29,605CCA Cogeco Communications $18,567 $18,567CTC.A Canadian Tire Corporation $18,556 $18,556SU Suncor Energy $17,892 $17,892MAS Masco Corporation $15,608 $19,648D.UN Dream Office REIT $14,859 $14,859NA National Bank of Canada $14,015 $14,015CDNS Cadence Design Systems $11,479 $14,450CR Crane Corporation $11,239 $14,148CALM Cal-Maine Foods $10,665 $13,426BIP Brookfield Infrastructure $9,550 $12,022GS Gluskin Sheff + Associates $9,347 $9,347SPR Spirit AeroSystems $9,149 $11,517KMP.UN Killam Apartment REIT $8,820 $8,820IPGP IPG Photonics Corporation $7,252 $9,129BNE Bonterra Energy Corp $3,576 $3,576Total Equity Value $229,578Cash (CAD) $70,130Total Portfolio AUM $299,708
SUPN 13%
CCA 8%
CTC.A 8%
SU 8%
MAS 9% D.UN
6% NA 6%
CDNS 6%
CR 6%
CALM 6%
BIP 5%
GS 4%
SPR 5%
KMP.UN 4%
IPGP 4%
BNE 2%
Current Holdings by Value (Pre-Trade July 19, 2017)
CAD/USD = 1.259 Weightings include cash
Portfolio comprised of 16 securities
50
Symbol Company Name Total Value CADCCA Cogeco Communications $18,567 $18,567CTC.A Canadian Tire Corporation $18,556 $18,556SU Suncor Energy $17,892 $17,892MAS Masco Corporation $15,608 $19,648CLS Celestica $15,000 $15,000SOT.UN Slate $15,000 $15,000NA National Bank of Canada $14,015 $14,015STN Stantec $13,000 $13,000SUPN Supernus Pharmaceuticals $11,759 $14,802CR Crane Corporation $11,239 $14,148CALM Cal-Maine Foods $10,665 $13,426TOU Tourmaline $10,000 $10,000BIP Brookfield Infrastructure $9,550 $12,022SPR Spirit AeroSystems $9,149 $11,517KMP.UN Killam Apartment REIT $8,820 $8,820IPGP IPG Photonics Corporation $7,252 $9,129BNE Bonterra Energy Corp $3,576 $3,576Total Equity Value $229,118Cash (CAD) $70,589Total Portfolio AUM $299,708
Current Holdings by Value (Post-Trade July 19, 2017)
CAD/USD = 1.259 Weightings include cash
Portfolio comprised of 17 securities
51
SUPN 6%
CCA 8%
CTC.A 8%
SU 8%
MAS 9%
NA 6% CR
6% CALM
6%
BIP 5%
SPR 5%
KMP.UN 4%
IPGP 4%
BNE 2%
CLS 7%
STN 6%
SOT.UN 7%
TOU 4%
Portfolio Breakdown – Impact
Source: Capital IQ
Cash23%
Industrials19%
TMT14%Consumer
Discretionary6%
Healthcare10%
REITs8%
Consumer Staples
5%
Financials8% Energy
7%
52
Pre-Trade (July 19, 2017) Post-Trade (July 19, 2017)
Cash24%
Industrials23%
TMT14%Healthcare
5%
REITs8%
Financials5%
Energy11%
Consumer Discretionary
6%
Consumer Staples
4%
53
Relative Sector Weightings – Impact
Relative weights as of July 19, 2017
Relative Weightings (Pre / Post Trade)
(25.0%) (20.0%) (15.0%) (10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0%
Industrials
REITs
Healthcare
Consumer Staples
Consumer Discretionary
TMT
Utilities
Energy
Materials
Financials
Pre-Trade Post-Trade
Change: -3.1%
Change: +3.3%
Change: +0.2%
Change: -4.9%
Change: +4.3%
Learning and Growth
54
Lessons Learned
Jimmy Zhou, Junior Analyst
The Student Investment Fund has given me the opportunity to critically analyze a sector in great detail. By engaging in hands-on projects and interacting with other fund members, I have supplemented my conceptual knowledge of finance with real-world context.
“
”
SIF has provided me with excellent foundational skills in equity analysis and exposure to the finance sector. Faculty members and students alike contributed to a unique learning and mentoring environment, where I felt I was pushed to challenge myself and grow.
“
”
Hellen Xia, Junior Analyst
Ethan Tang, Senior Analyst
One of the most memorable lessons I have learned on the fund is how to best formulate your thesis to pitch an investment. I also learned a great deal from our members' pitches of stocks from different sectors.
“
”
Being on the fund has allowed me to develop the tools to truly understand a company and cultivate a solid investment thesis that can be illustrated through both qualitative and quantitative analysis.
“
”
Kevin Osei, Senior Analyst
55
SIF Competition Success CFA Society – Investment Research
Challenge 2017 Ryerson University – Battle on Bay
Street 2017
SIF team (Raj Patel, Talha Siddiqui, Sophia Chen, Judy Dong and Thinisha Gunasekara) advanced to the CFA Institute Research
Challenge Americas Regional Finals
SIF team (Raj Patel, Talha Siddiqui, Thinisha Gunasekara and Kevin Zhao) wins first place
Team with three SIF members (Justin Lao, Dennis Zhang, Sravya Seemakurti) and Gabriel Siu wins first place
Telfer TMX CDS Finance Case Competition 2017
56
SIF Involvement in the Finance Community Stacey Muirhead Annual
Investor Presentation Spring 2017 Mentor Session
A group of SIF students attended Stacey Muirhead Capital Management's Annual
Investor presentation in Waterloo on June 18.
Qatalyst Partners Conference Call Ben Graham Centre's Value Investing Conference
SIF alumni Andy Wang (Associate CPPIB) and Jacky Lam (Analyst, Scotia IB) presented a session on industry best practices on equity research, valuations and presentations to the
SIF team on June 24 in Waterloo.
Two SIF alum at Qatalyst Partners (San Francisco) hosted a conference call for SIF
students to provide information on their summer and full-time recruiting for 2018.
Faculty and Student Portfolio Managers (from the Winter 2017 term) attended Ivey's Ben
Graham Centre's Value Investing Conference in Toronto on April 19
57
Spring 2017 New Initiatives
Mock Interview Sessions Weekly News Updates from Junior Analysts
Mentor Session with Jacky Lam and Anqi Wang
Historical Trading Decisions Analysis Presentation by PMs
58
59
Historical Trading Decisions Analysis – Healthcare Current Holdings
Total Return - Stock Total Return - Index Actual Reinvested Dividends Reinvested Dividends Evaluation
Supernus Pharmaceuticals, Inc. 94.6% 94.6% 10.7% Good
Sold Stocks
Total Return Since Sell Date Total Actual Return Stock Related Index Evaluation
Valeant Pharmaceuticals 55.9% (84.8%) 45.3% Good
Myriad Genetics, Inc. (9.1%) (25.5%) 10.7% Good Express Scripts Holding Company (9.6%) (19.0%) 8.6% Good
Case Study: Valeant Pharmaceuticals 1 Valeant acquires Bausch & Lomb
2 SIF purchases @ $94/share
3 SIF sells @ $146/share; 56% return
4 Bill Ackman discloses 5% stake
5 Citron short report released; accused of fraud
6 Investigated by SEC for price gouging
Sample Summer/Co-op Placements
Analyst, Investment
Banking
Analyst, Investment
Banking
Analyst, Investment
Banking
Analyst, Trading
Products Analyst
Analyst, Investment
Banking
Analyst, Investment
Banking
Analyst, Corporate Banking
Summer Associate
Analyst, Trading
Analyst, Private Equity
Analyst, Equity Research
60
Sample Full-Time Placements
Brent Small
Equity Analyst (2017)
Jia Fan
Corp. Banking Analyst (2018)
Sami Ahmed
IB Analyst (2018)
Vincent Chow
IB Analyst (2017)
Evelyn Huang
IB Analyst (2017)
Karan Balachandar
IB Analyst (2017)
Tiffany Chung
IB Analyst (2016)
Eric Sherifi
IB Analyst (2016)
Benjamin Krever
Corp. Banking Analyst (2017)
Hasanain Habib-Nayany
Consultant (2017)
Wendy Cai
Investment Analyst (2016)
Thanoozan Thangaraja
IB Analyst (2017)
Kobisan Rasaratnam
IB Analyst (2017)
Ryan Korn
IB Analyst (2018)
Rudder Zhang
IB Analyst (2016)
61
Industry Mentors
Lu Jiang Niall Glynn Pawel Rajszel David Middleton Dorena Tu
Mike Williams Jin Li Helena Wang Ian Gutwinski Derek Chu
Aly Hadibhai Kevin Huynh Ray Wan David Lee
Simon Kwan Michael Liu Nick Gill Jonathan Sue Howard Leung
Jacky Lam
Asia Research & Capital Management,
Hong Kong
Glen Union Capital Inc.
Entrepreneur
62
Industry Mentors
Milenko Sikljovan Anqi Wang Frank Hayes Michael Wang Connor Kingston
Bin Li
63
Partners
Ranjini Jha Andrew Ecclestone
John Gort (Chair) Jeffrey Stacey Dennis Huber Aazar Zafar Dan Lavric Alan Douglas
Lynn Graham
Faculty
Advisory Board
Student Relations
Garvin Blair
Jim Barnett
64
Thank You!
65