AIM Advisory Board PresentationAdvisory Board Presentation

AIM Advisory Board PresentationAIM Advisory Board Presentation

AIM XXVIApril 28 2008

Applied Investment Management XXVI 1University of Notre Dame • Mendoza College of Business

April 28, 2008

AIM AIM XXVI AnalystsAIM AIM XXVI AnalystsIntroductions

Brett ThomasBinghamton, NY

Portfolio Overview

Matt KorcinskyGreenville, PA

Economic Environment

Hunter JohnsonBeaumont, TXg ,

Getty Images (GYI)Aqua America (WTR)UBS Investment Bank

Cheryl RamseyCincinnati, OH

,Pharmaceutical Products (PPDI)Republic Services, Inc. (RSG)

Matt WalterCleveland, OHApple (AAPL)

,Pepsico (PEP)Sun Hydraulics Systems (SNHY)AT&T

Eric CrawfordWest Hartford, CTCincinnati, OH

Dentsply International, Inc. (XRAY)Monsanto Corporation (MON)

Portfolio Overview

Apple (AAPL)Progress Energy (PGN)

Economic Environment

B K l

West Hartford, CTYRC Worldwide (YRCW)Weyerhaeuser Co. (WY)UBS Investment Bank

S it A l iEric LarssonTrumbull, CTBarrick Gold (ABX)Kirby Corp. (KEX)IBM

Barry KesslerSpring, TXVaalco Energy (EGY)El Paso Corporation (EP)Simmons and Company

Security Analysis

Andy FreyKalispell, MTBJ Services (BJS)Aptar Group Inc. (ATR)

Julio RivasSan Salvador, El SalvadorWhirlpool (WHR)Boeing Co. (BA)

Matt WeglarzKansas City, MOPotash Corp. (POT)Caterpillar (CAT)

Aldo ArcieriRidgewood, NJZimmer Holdings (ZMH)Intercontinental Exchange, Inc. (ICE)

Applied Investment Management XXVI 2

AIM AIM XXVI AnalystsAIM AIM XXVI AnalystsSecurity Analysis

Jerry WangBeijing, China

Security Analysis

Paul TrahmsRochester, MN

Performance Evaluation

Adam AshleyAshland, KYBeijing, China

Nutri Systems (NTRI)Zhongpin, Inc. (HOGS)Notre Dame Investment Office

Jim McGovernPhiladelphia PA

Rochester, MNWalgreen Co (WAG)Equifax (EFX)

Jake WagnerRedlands, CAMorgan Stanley (MS)

,McGraw-Hill (MHP)Huron Consulting Group (HURN)

Todd BorgmannIndianapolis, INExxon/Mobil (XOM)Philadelphia, PA

PMI Group (PMI)Goldman Sachs Group Inc. (GS)

Mousa KolahdoozSan Francisco, CAT B d (TUP)

Morgan Stanley (MS)Boston Private Financial Holdings (BPFH)Merrill Lynch

Performance Evaluation

Exxon/Mobil (XOM)Toll Brothers, Inc. (TOL)

Bob ManleyBuffalo, NYLOOPnet (LOOP)Ameron International Corp (AMN)Tupperware Brands (TUP)

EMC Corp. (EMC)Citigroup

Andrew SamalisReading, MA

b A

Cory RellasPlano, TXDell Inc. (DELL)Burlington Northern Santa Fe (BNI)Notre Dame Senior Finance Major

Ameron International Corp. (AMN)

General Information

Blair MlnarikCabelas (CAB)Service Corp. Intl. (SCI)

Manish VaswaniNew Delhi, IndiaUnited Health Group (UNH)Sigma Aldrich (SIAL)

Plymouth, MNDigital River (DRIV)FCStone Group, Inc. (FCSX)Robert W. Baird


AIM AgendaAIM Agenda

• IntroductionsIntroductions

• Course overview

• Economic outlook

• Security analysis

• Portfolio performance• Portfolio performance

• Wrap-up


AIMAIM

Course OverviewCourse

O i

Portfolio

P f

Security

A l i

Economic

O tl k

General

I f tiOverview PerformanceAnalysisOutlook Information


AIM Course OverviewAIM Course Overview

• Course Objective:Course Objective:– Applied Investment Management will provide

analysts with a thorough grounding in the process ofanalysts with a thorough grounding in the process of portfolio management, from the broad asset allocation decision through individual stock gevaluation


AIM Course OverviewAIM Course Overview

• Analysts:Analysts: – Inherit portfolio position and update intrinsic value

Select and value one additional stock– Select and value one additional stock• Present to group on several topics including:

– Economic analysis• Industry review

S i l i– Security analysis– Portfolio performance


AIM Investment PoliciesAIM Investment Policies

• Portfolio will comprise of only equities listed onPortfolio will comprise of only equities listed on US exchanges

• No fixed income money market or derivatives• No fixed income, money market or derivatives instruments will be purchasedN i h• No margin purchases

• No short selling except for the industry hedge position (less than 1% of the portfolio value)


AIM Investment PoliciesAIM Investment Policies

• Portfolio composition will roughly match the industrialPortfolio composition will roughly match the industrial sector’s weighting on the S&P500

• No individual holding should exceed 10% of current• No individual holding should exceed 10% of current market value of portfolio

• Long-term target for cash holdings is 0%

• AIM shall invest in companies with values consistent pwith those of the University of Notre Dame (abortifacients, tobacco, birth control, etc)


AIM Investment ConstraintsAIM Investment Constraints

• Perpetual investment horizon• Perpetual investment horizon– Equity investments will be viewed for their

potential over the long term 3 to 5 yearspotential over the long-term, 3 to 5 years

• Prudent person rule– Investing with the care, skill, and diligence that a

prudent person would use– In extraordinary circumstances, fund managers can

intervene as necessary to meet AIM objectives


AIM Investment PhilosophyAIM Investment Philosophy

• Investment objectiveInvestment objective– Outperform S&P 500 over the long-term

• Risks– Managed by diversification

• Investment decisionsF d l l i– Fundamental analysis


AIM Portfolio Target AllocationAIM Portfolio Target AllocationSmall & Mid-

CapCap35%• Sector concentration

will match S&P, plus or i 5%

Large Cap65%

minus 5%

E h i di id l k

• Small cap < $500M

• Each individual stock will not exceed 10% of market value of • Small-cap < $500M

• Mid-cap $500M - $5B• Large-cap > $5B

portfolio


AIM Sector PositionsAIM Sector Positions

• Select one industry to long and one to shortSelect one industry to long and one to short– Economic forecast

Industry reviews– Industry reviews• Long: financials• Short: real estate


AIMAIM

Economic OutlookCourse

O i

Portfolio

P f

General

I f ti

Security

A l i

Economic

O tl kOverview Performance InformationAnalysisOutlook


AIM Economics Group AgendaAIM Economics Group Agenda

• Economic predictionEconomic prediction• How did we get here?

– Major economic indicesMajor economic indices– Housing– Consumer spendingConsumer spending

• What is the Fed doing?– Recession concernsRecession concerns– Inflation expectations

• Portfolio impact


Portfolio impact

AIMAIM

F f h EFuture of the Economy


AIM Economic PredictionAIM Economic Prediction

• RecessionRecession• GDP

D li i GDP ( li d 0 6% i Q4)– Declining GDP (annualized 0.6% in Q4)– Decline of dollar increasing cost pressures

• Housing and consumption– Housing starts continue to decline– Consumer expectations


AIMAIM

R E i HiRecent Economic History


AIM Change in Major Indices AIM Change in Major ndices

8 00%

GDP Consumer Spending Unemployment Rate

6.00%

7.00%

8.00%

4.00%

5.00%

1.00%

2.00%

3.00%

-1.00%

0.00%

2000

2001

2002

2003

2004

2005

2006

2007


-2.00%

AIMAIM

I #1 H iIssue #1: Housing


AIM HousingAIM Housing

• The “precipitous fall”The precipitous fall– Existing home sales, permits, new home sales, prices

all down in one of worst housing markets in historyall down in one of worst housing markets in history

• Buyers pessimistic until prices stabilize• Buyers pessimistic until prices stabilize– More foreclosures, subprime lending gone


AIM Existing Home SalesAIM E isting Ho e Sales7000

8000

4000

5000

6000

000’

s)

1000

2000

3000

(0

0

1000

2000

- Ja

n20

00 -

Jul

2001

- Ja

n20

01 -

Jul

2002

- Ja

n20

02 -

Jul

2003

- Ja

n20

03 -

Jul

2004

- Ja

n20

04 -

Jul

2005

- Ja

n20

05 -

Jul

2006

- Ja

n20

06 -

Jul

2007

- Ja

n20

07 -

Jul

2008

- Ja

n

2 2 2 2 2 2 2 2 2

•Inventory up 12% YoY in March

•Median price of a home dropped 13.3% YoY in March, largest since 1970

Applied Investment Management XXVI 22Applied Investment Management XXVI

•Existing home sales fell 2%, down 7.7% YoY in MarchSource: www.realtor.org

AIM New Home SalesAIM New Home Sales

•Sales of new homes dropped by 8.5% last month to 526,000


AIM Housing StartsAIM Housing Starts

•Housing starts down 11.9% in March YoY to 974,000


•Housing permits down 5.8% in March YoY - future indicator of housing starts

AIM Subprime: Delinquencies Have AcceleratedAIM

Seriously Delinquent % of Total

p q

30

35

Seriously�Delinquent�%�of�Total�

20052006

(%)

20

25

30

2004

2007 17%

10

15

2007

0

5

0 5 10 15 20 25 30 35 40 45


Loan Age (Months)

Applied Investment Management XXVI

AIM Small Segment of US Homes Drives Potential LossesAIM Small Segment of US Homes Drives Potential Losses

Estimated�Mortgage�Losses:�Total�US�Homes128 Million

Homes Financed by Subprime

IMF forecasts that losses could reach one trillion dollarsHomes Financed by Subprime

Loans—6 Million• $575 billion strictly mortgage

• Default losses on non-iti d l t $100 billisecuritized loans at $100 billion

• Adds marked-to-market losses of mortgage related securities

• Adds in other consumer and corporate debt


• Includes potentially recaptured sums


AIMAIM

I #2 Th CIssue #2: The Consumer


AIM Consumer SpendingAIM Consumer Spending25.00%

Real Disposable Income vs Food & Energy

20.00%

10 00%

15.00%

ng

e Y

/Y

5.00%

10.00%

% C

ha

0.00%

Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08


-5.00%

Real Disposable Personal Income Energy Prices Food Prices Source: St. Louis Fed

AIM Consumer SpendingAIM Consumer Spending


AIM Consumer ConfidenceAIM Consumer Confidence

• University of Michigan April numbers came inUniversity of Michigan April numbers came in at 62.6 (January: 78.4; March 69.5)

• 25 year low• 25 year low – March 1982: 62.0

• Expectations index at 35-year low

• Consistent with Conference BoardSource:�St.�Louis�Fed�and�Conference�Board


• Consistent with Conference Board

AIM Confidence vs. % Change PCEAIM Confidence vs. % Change PCE110.0

120.0

10.00%

12.00%

Sharp drop in MCSI followed by PCE Drop

90.0

100.0

6.00%

8.00%

70.0

80.0

2.00%

4.00%

50.0

60.0

-2.00%

0.00%

40.0

1978

-01-01

1981

-01-01

1984

-01-01

1987

-01-01

1990

-01-01

1993

-01-01

1996

-01-01

1999

-01-01

2002

-01-01

2005

-01-01

2008

-01-01

-4.00%


Michigan Consumer Sentiment % Change YoY PCE

AIM Payroll Down 3 Months StraightAIM Payroll Down 3 Months Straight

• Layoffs spread:Layoffs spread: – Housing

Construction– Construction– Manufacturing

Fi i l– Financials


AIM Unemployment Rate ClimbsAIM Une ploy ent Rate Cli bs• March Data

– Unemployment rate rose from 4.8% to 5.1%– Increased by 434,000 to 7.8 million, up 1.1 million

from March ‘07• Peak at 6% early next yeary y


Source:�Bureau�of�Labor�Statistics,�USDoL


AIMAIM

F d A iFed Actions


AIM Fed Actions: RatesAIM Fed Actions: Rates

• Goals:Goals:– Sustainable economic growth

Price stability– Price stability

• Actions:• Actions:– Twelve meetings (six unscheduled) since August ‘07

Si f d f d i S b ‘07– Six fed funds rate cuts since September ‘07• 2.25% from 5.25%


AIM Fed Funds & Discount RatesAIM Fed Funds & Discount Rates

Di t R t

Fed Funds: 2.25%

Discount Rate:2.50%


Source: Federal Reserve Bank of New York

AIM Yield CurvesAIM Yield Curves

One Year Ago

Six Months Ago

One Month Ago

Currently


AIM Fed Actions: LiquidityAIM Fed Actions: Liquidity

• Goal:Goal: – Foster liquidity to “promote moderate growth over

time and to mitigate the risks to economic activity”time and to mitigate the risks to economic activity

• Actions:– Financing arrangement for JPM & BSC– Six month lending facility for primary dealers– $100B in term repurchase transactions– March TAF amounts increased to $100B


AIM Measure of InflationAIM Measure of InflationCore PCE Headline CPI

4 0

4.5

5.0

2 5

3.0

3.5

4.0

1 0

1.5

2.0

2.5

%

0.0

0.5

1.0

Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07


Source: St. Louis Fed


AIM Balancing Inflation & GrowthAIM Balancing Inflation & Growth

• Dollar may stabilize with fewer rate cutsDollar may stabilize with fewer rate cuts

Sl i bl d ll i i• Slumping economy & stable dollar may reign in oil & agricultural prices

• Future Fed actions likely to address liquidity y q yrather than rate cuts


AIM US Dollar StrengthAIM US Dollar Strength$140 110

$80

$100

$120

90

100WTI Crude US Dollar Index

$40

$60

$80

70

80

90

$0

$20

/2/03

/8/03

/8/04

/6/04

31/04

29/05

26/05

23/06

20/06

25/07

21/07

60

70

Source: EIA, St. Louis Fed

1/2 7/8 1/8 7/6

12/31 6/2

9

12/26 6/2

3

12/20 6/2

5

12/21


AIM Dollar and Oil ImpactsAIM Dollar and Oil ImpactsUSD•Dollar continues to weaken, strengthening exports

•Dollar weakness is encouraging foreign investment into the US

•European Central Bank (ECB) not keeping pace with U.S. rate cuts

Crude Oil•Global demand increase despite slo do n in the USA•Global demand increase despite slowdown in the USA

•Continued terrorist activity in Africa and the Middle East impacting supply


impacting supply


AIM Agricultural ProductsAIM Agricultural Products$2.00

$2.25

$6.00

$7.00Corn Wheat

Source: CBOT

$1.25

$1.50

$1.75

$3 00

$4.00

$5.00

$0.50

$0.75

$1.00

$1.00

$2.00

$3.00

•Global demand increasing while supply is unable to keep pace

•Food riots throughout the world

•Decreased US food output due to ethanol requirements


p q

•San Francisco now asking consumers to limit rice purchases

AIMAIM

P f li IPortfolio Impact


AIM Portfolio Outlook by SectorAIM Portfolio Outlook by SectorSector Outlook Catalyst

Energy

�

Global growth and demand for oil

Consumer Staples Defensive play to slower GDP growth

Materials Strong global demand�Materials Strong global demand

Health Care Positive demographic trends

Financials Steeper yield curve helping banks

Utilities Defensive play to slower GDP growth

Telecom Services � Uncertain industry outlook

Consumer Discretionary

�High commodity costs prohibit spending

IT Disappointing IT capex and mixed earnings

I d t i l Sl US GDP th


�Industrials Slower US GDP growth

Real Estate Commercial following residential trend

AIM Economic ReviewAIM Economic Review

• Projected recessionProjected recession• Economic downturn caused by housing and

consumer issuesconsumer issues• Fed actions promoting liquidity and growth• Inflation may be a concern going forward • Economic factors impact AIM portfoliop p


AIMAIM

Security Analysisy yCourse

O i

Portfolio

P f

General

I f ti

Security

A l i

Economic



AIM Security AnalysisAIM Security Analysis

• We are stock pickersWe are stock pickers– Individual stock evaluation and selection

• Alpha generation

• Bottom-up, fundamental analysis– Emphasis on intrinsic valuation


AIM Research ProcessAIM Research Process

• Company backgroundCompany background– How does it make money?

SWOT analysis– SWOT analysis– What can the analyst discover?

• Industry report– Basic fundamental environment & outlook– Determines ETF hedge positions



• Fundamental analysisFundamental analysis– Key ratio performance vs. competitors

Identify risk and growth elements– Identify risk and growth elements

E i f 4Q’• Earnings forecast – next 4Q’s– Heuristic method– Financial method



• Beta forecastBeta forecast– Regress returns against index

• Fi l l ti• Final valuation– Combine valuation approaches

FCF l i l l i DDM i h d• FCF, multiples analysis, DDM, equity method

– Intrinsic value vs. price in buy/sell recommendation• Technical analysis

– Are price patterns giving us the same signal?


AIM Analyst PresentationsAIM Analyst Presentations

Analyst Ticker FocusAnalyst Ticker FocusAldo Arcieri ICE Background / DiscoveryJ rr W HOGS I d tr A l iJerry Wang HOGS Industry Analysis

Jim McGovern GS Fundamental AnalysisM K l hd EMC E i FMousa Kolahdooz EMC Earnings ForecastAndrew Samalis SCI Beta and Free Cash Flow

Paul Trahms EFX Multiples AnalysisJake Wagner BPFH Technical Analysis


AIM Intercontinental Exchange (ICE)AIM ntercontinental E change ( CE)As of 21-Apr-08

Price: $158.02

Fwd P/E: 30.98

Mkt Cap: $11.08 B

R (E 2008) $804 01 MRev (E 2008): $804.01 M

2008E EPS: $5.10


AIM ICE: Business/Business linesAIM ICE: Business/Business lines

• Operates an electronic futures and over-the-counterOperates an electronic futures and over the counter marketplace for the exchange of global commodity and financial products.


AIM ICE: Revenue By Business LineAIM CE: Revenue y usiness Line

RRevenues12/31/2005 12/31/2006 12/31/2007 05-06 Growth 06-07 Growth

OTC Business 84,179 168,743 241,803 100.46% 43.30%Futures Business 60 082 127 024 289 333 111 42% 127 78% Futures Business 60,082 127,024 289,333 111.42% 127.78%

Market Data Business 11,604 18,032 43,157 55.39% 139.34% Total 155,865 313,799 574,293 101.33% 83.01%

Geographic Analysis

12/31/2005 12/31/2006 12/31/2007 % Split % Split

United States 90,202 178,100 376,012 56.76% 65.47%European Union & Canada 65 663 135 699 198 281 43 24% 34 53% European Union & Canada 65,663 135,699 198,281 43.24% 34.53%

Total 155,865 313,799 574,293


AIM ICE: DiscoveryAIM ICE: Discovery

• Leo Melamed• Leo Melamed-CEO is shrewd and innovative-Still a potential acquisition target

• Dennis Gartman-Global demandNew products-New products

-Growth in the OTC segment

• Hedge Fund Manager• Hedge Fund Manager-28x PE multiple justified-30% growth year over year-Tougher comps in Q3, Q4 2008


g p Q , Q

AIM ICE: Key MetricsAIM ICE: Key Metrics

ICE vs. CompetitorsPrice to Sales, Price to Book, Forward PE Multiple, PEG Ratio

25

15

20

ICE

CME

0

5

10 NYX

Price to Sales Price to Book Forward PE Multiple PEG Ratio


AIM ICE: Recommendation-- SELLAIM ICE: Recommendation SELLMethod Value Weight

Weighted Value

Discounted FCF $ 166.50 50% $ 83.25P/E Multiplier (28x) $ 150.92 50% $ 75.46

Intrinsic Value $ 158.71

4/21/08 Stock Price $ 158.02

U id 0 4%Upside 0.4%


AIM Zhongpin, Inc: HOGSAIM Zhongpin, nc: HOGSAs of 21-Apr-08

Price: $10.68

Fwd P/E: 10.68

Mkt Cap: $281 M

R (E 2008) $497 MRev (E 2008): $497 M

2008E EPS: $1.00


AIM Fast Growing Industry in ChinaAIM Fast Growing ndustry in China

• 50% of world pork consumption (5.2M ton in 2007)50% of world pork consumption (5.2M ton in 2007)• Meat processing industry: CAGR 22% (03-07)• Pork price rose by 67% in 2007Pork price rose by 67% in 2007


Source: Boya Agriculture

AIM Fundamental TransitionAIM Fundamental Transition

• Strengthened regulationg g• Changing consumer behaviors • Consolidation of 30,000 small companies p

Commodities Price(Yuan/Kg) 1Q08 2Q 4Q08

Period(Yuan/Kg) 1Q08 2Q-4Q08

Corn 1.60Soybean 3.81Piglet 48.00Hog 17.60Pork 25.20


Exchange rate: 6.9989 Yuan/USD

AIM Integrated Value ChainAIM ntegrated Value Chain

ProcessorFarmer Distributor Retailer Consumer

• Advanced

• L-T contract

• Unified breed feed

Advanced technology

• ISO9001/ HACCP/

breed, feed, quarantine, procurement

FDA

• Retail stores

• Higher income

• Rising living standard

• Distribution Centers

• ERP

• Restaurants

• Supermarkets

• Export

• Hygienic fresh meat


• Refrigerated Trucks

p


AIM Transformed State Owned EnterpriseAIM p

• Modernization process • Fast expansion (CAGR 77% 03-07)• Strong brand (Beijing Olympic meat provider)j

Sales

96%103%

120% $1,200MM

45%

72%

96%

71%

60%

80%

100%

$600

$800

$1,000

45%

26% 22% 18% 14%

0%

20%

40%

$0

$200

$400


0%2003 2004 2005 2006 2007 2008e 2009e 2010e 2011e 2012e

$0


AIM HOGS: Recommendation-- BUYAIM HOGS: Recommendation BUYMethod Value Weight

Weighted Value

P/S Multiplier (.52x) $ 8.49 30% $ 2.55 P/E Multiplier (12.18x) $ 12.10 30% $ 3.63Di d FCF $ 24 19 40% $ 9 68Discounted FCF $ 24.19 40% $ 9.68


4/21/08 Stock Price $ 10.67

Upside 48.6%


AIM Goldman Sachs (GS)AIM Goldman Sachs (GS)As of 21-Apr-08

Price: $181.20

/Fwd P/E: 10.62

Fwd P/B: 1.63

Mkt Cap: $74.42 B

Rev (E 2008): $78.14 B

2008E EPS: $16.95


AIM GS: DuPont ModelAIM GS: DuPont Model2002 2003 2004 2005 2006 2007

ROA 0 6% 0 8% 1 0% 0 9% 1 2% 1 2%ROA 0.6% 0.8% 1.0% 0.9% 1.2% 1.2%ROE 11.4% 14.8% 19.5% 21.1% 29.5% 29.0%

Leverage Ratio 18.7 18.7 21.2 25.2 23.4 26.2

• DuPont Formula: ROE= Return on capital*LeverageDuPont Formula: ROE Return on capital Leverage– Financial companies use leverage to increase ROE– Retail companies use asset turnover to drive performancep p


AIM GS: ProfitabilityAIM GS: Profitability2002 2003 2004 2005 2006 2007 AVG COMP

Gross Profit Margin 61.2% 67.8% 69.0% 57.3% 53.7% 51.9% 55.2% 25.9%

EBITDA Margin 17.5% 23.7% 25.2% 21.0% 22.4% 21.3% 18.6% 13.0%

Operating Margin 14.2% 18.8% 22.4% 19.1% 21.0% 20.0% 16.3% 11.5%

Net Profit Margin 9.3% 12.7% 15.3% 12.9% 13.6% 13.0% 11.5% 8.0%

• Financial performance has been very strongFinancial performance has been very strong– Higher ROE and profitability than all of their competitors– Much better at mitigating riskg g


AIM GS: Financial Risk ProfileAIM GS: Financial Risk Profile2002 2003 2004 2005 2006 2007 AVG

Quick ratio 1.19 1.24 1.25 1.22 1.23 1.23 1.20

Debt to Equity Ratio 2.04 2.66 3.22 3.57 3.43 3.84 2.75

Total Debt Ratio 0.95 0.95 0.95 0.96 0.96 0.96 0.95

Coverage Ratio 1 58 2 11 2 32 1 37 1 18 1 09 1.34

• D/E ratio very high-necessary in brokerage industry• Quick ratio, total debt, and interest coverage ratio are low, but

Coverage Ratio 1.58 2.11 2.32 1.37 1.18 1.09 1.34

Q , , g ,consistent with historical levels– Note that interest income has been higher than interest expense each year


AIM GS: Recommendation-- BUYAIM GS: Recommendation BUYMethod Value Weight

Weighted Value

P/B Multiplier (2.0x) $ 221.79 50% $ 110.89 P/E Multiplier (11.5x) $ 231.56 50% $ 115.78


4/21/08 Stock Price $ 181.20



AIM EMC Corp (EMC)AIM EMC Corp (EMC)As of 21-Apr-08

Price: $15.60

Fwd P/E: 16.59

Mkt Cap: 32.75B

R (E 2008) $13 23BRev (E 2008): $13.23B

2008E EPS: $0.77


AIM Company BackgroundAIM Co pany ac ground

• EMC Corp specializes in information storage systems, software and services

Systems

• Information Lifecycle Management

Software License & Maintenance

Management

• VMware

Professional Systems Maintenace and Other Services


AIM My EPS vs. Wall StreetAIM My EPS vs. Wall Street2008 EPS Projectons

0 95

1.05

1.15

0.65

0.75

0.85

0.95

0.45

0.55


AIM EMC’s Stake in VMWAIM EMC s Stake in VMWEMC's Vmware Ownership Valuation as of 4/8/2008T t l V h 385 5 385 5 385 5 385 5Total Vmware shares 385.5 385.5 385.5 385.5VMW Target Share Price 64.00$ 64.00$ 64.00$ 64.00$ VMW Mkt Cap 24,672$ 24,672$ 24,672$ 24,672$ Class A and B shares owned by EMC 331 331 331 331VMW owned by EMC 86% 86% 86% 86%

VMW owned by EMC 21,193 21,193 21,193 21,193Liquidity Discount 20% 15% 10% 5%

EMC's VMW w/ Liquidity Discount 16,955$ 18,014$ 19,074$ 20,134$q y , , , ,Total EMC Shares 2158 2158 2158 2158As per EMC share 7.86$ 8.35$ 8.84$ 9.33$

EMC Share Value w/ VMW 18.53$ 19.02$ 19.51$ 20.00$


AIM EMC: Recommendation-- BUYAIM EMC: Recommendation BUY

Method Value WeightWeighted

Valueg

EMC Standalone (FCF) $ 10.67 100% $ 10.67

Discounted FCF w/VMW stake $ 19.02 50% $ 9.51 P/E Multiplier (20x) $ 17.40 50% $ 8.70


4/21/08 Stock Price $ 14.80

Upside 23%


Upside 23%


AIM Sensitivity AnalysisAIM Sensitivity nalysis

EMC Sensitivity to VMW Price for FCF ValuationEMC Sensitivity to VMW Price for FCF Valuation"+ 1 SD" VMW Price 71.77$

Resulting EMC DCF Value 20.04$

Intrinsic Value 18.72$

"- 1 SD" 32.85$ 1 SD 32.85$ Resulting EMC DCF Value 14.97$

Intrinsic Value 16.19$


AIM Service Corp International (SCI)AIM Service Corp nternational (SC )As of 21-Apr-08

Price: $10.35

Fwd P/E: 14.58

Mkt Cap: $2.71 B

R (E 2008) $2 29 BRev (E 2008): $2.29 B

2008E EPS: $0.60


AIM Background & IndustryAIM Background & IndustryRevenue by Business Unit Industry Competitors MCap & Revenue

$3 000$759.9 $1,525.3

$1,000

$2,000

$3,000

n m

illi

ons) MCAP

Revenue

Funeral Cemetery

$0

$1,000

SCI STEI STON CSV

(in

• Leading provider of deathcare products and services

• Operate 1,300 funeral homes and 350 cemeteries in 43 states

• Recently acquired largest competitor for $1 2B in cash and debt


• Recently acquired largest competitor for $1.2B in cash and debt


AIM DCF Model – Method & Key DriversAIM y

Method:Forecast revenues, net income, & free cash flows for 2008 – 2013

-Five year high growth period free cash flows discounted at WACC

-Terminal free cash flow discounted at WACC

Sum of discounted future CFs + Excess cash – Liabilities = Equity Value


AIM DCF Model – Method & Key DriversAIM y

Key Drivers:

•Revenue: Modest growth for 2008: 3%; increasing to 5% by 2013

•Expenses: Conservative and gradual decline for COGS & SGA as POS

-Reflective of synergies from Alderwoods acquisitionReflective of synergies from Alderwoods acquisition

•Cap Ex: $150-$250M annual for expansion & existing location maintenance

•Terminal Growth Rate: 3.75% to reflect long term growth


AIM Forecasted Net Income & EPSAIM Forecasted Net Income & EPSForecasted Net Income & EPS

$0.93$0.84

$250

$300$0.90$1.00

$169$181 $190

$207$221

$241$0.78

$0.70$0.66$0.60

$150

$200

$250

me

($00

0s)

$0 50$0.60$0.70$0.80

PS$169

$50

$100

$150

Net

Inco

m

$0.20$0.30$0.40$0.50

EP

$-

$50

2008 2009 2010 2011 2012 2013$-$0.10

Net Income EPS

Forecasted 2008 - 2013


Net Income: $169M - $241M EPS: $0.60 - $0.93


AIM Forecasted Revenue & FCFAIMForecasted Revenue & FCF 2008 - 2013

$2 947$2 807

$3,500 $250

Forecasted Revenue & FCF

$2,354 $2,448$2,947$2,807

$2,546 $2,673

$2,000

$2,500

$3,000

($00

0s)

$150

$200

0,00

0s)

$1,000

$1,500

Rev

enue

$50

$100

FCF

($00

0

$-

$500

2008 2009 2010 2011 2012 2013

$-

$

Revenue Cash Flows

Forecasted 2008 - 2013


Revenue: $2.3B - $2.9B FCF: $120M - $200M


AIM Beta & WACCAIMBeta 0.83

Beta & WACC

Risk-Free Rate (10 year bond) 3.47%Market Risk Premium 5.00%Marginal Ta Rate 36 00%Marginal Tax Rate 36.00%

Estimates: D bt W i ht 37 42%Debt Weight 37.42%Equity Weight 62.58%Cost of Debt 4.54%Cost of Equity 7.62%WACC 5.86%


FCF estimated intrinsic share value of $13.08Applied Investment Management XXVI

AIM SCI: Recommendation-- BUYAIM SCI: Recommendation BUYMethod Value Weight

Weighted Value

Discounted FCF $ 13.08 90% $ 11.77 P/E Multiplier (20.0x) $ 12.00 10% $ 1.20


4/21/08 Stock Price $ 10.61



AIM Equifax (EFX)AIM Equi a (EFX)As of 21-Apr-08

Price: $36.13

Fwd P/E: 14.6

Mkt Cap: $4.65 B

R (E 2008) $2 03 BRev (E 2008): $2.03 B

2008E EPS: $2.30


AIM Equifax (EFX)AIM Equi a (EFX)•Largest personal credit reporting agency in US by revenue

•Database contains files on 220 million people domestically

Oli l 2 tit (E i T U i )•Oligopoly - 2 competitors (Experian, TransUnion)

Consumer Services 74%

Personal Solutions 10%

Small Business 4%


TALX 12%


AIM Book ValueAIM Book Value

Valuation Date: December 31, 2007Valuation Date: December 31, 2007

(In $, Millions)

Book Value of Total Assets (including Goodwill) $3,524

Goodwill $1,835

Book Value of Total Liabilities $2,125

Book Value $1,399

Shares Outstanding 129.7

Book Value / Share $10.79/ $

Book Value / Share (excluding Goodwill) ($3.35)


AIM Forward P/S Model = 33% WeightAIM Forward P/S Model 33% Weight

Forward Sales/Share $16.02 Estimated Price/Sales 2.68Estimated Price/Sales 2.68Intrinsic P/S Value $42.93

4/21/08 Stock Price $36.13Trading at a Discount of 19%Trading at a Discount of 19%


AIM Forward P/E Model = 33% WeightAIM Forward P/E Model 33% Weight

Forecasted Price/Earnings $2.37 Estimated Forward P/E 16.4Estimated Forward P/E 16.4Intrinsic P/E Value $38.87

4/21/08 Stock Price $36.13Trading at a Discount of 8%Trading at a Discount of 8%


AIM EFX: Recommendation-- BUYAIM EFX: Recommendation BUYMethod Value Weight

Weighted Value

P/S Multiplier (2.68x) $ 38.87 33% $ 14.17 P/E Multiplier (16.4x) $ 42.93 33% $ 12.82 Di d FCF $ 40 62 34% $ 13 81Discounted FCF $ 40.62 34% $ 13.81


4/21/08 Stock Price $ 36.13

Upside 12.9%


AIM Boston Private Financial Holdings (BPFH)AIM Boston Private Financial Holdings (BPFH)As of 21-Apr-08

Price: $10.01

Fwd P/E: 7.3

Mkt Cap: $341.3 M

Rev (E 2008): $521 3 MRev (E 2008): $521.3 M

2008E EPS: $1.32


AIM BPFH: Down TrendlineAIM BPFH: Down Trendline


AIM BPFH: $10.00 Support LevelAIM PFH: $ 0.00 Support Level


AIM BPFH: 50/200 SMAAIM BPFH: 50/200 SMABPFH: 1 year


AIM BPFH: MACDAIM BPFH: MACD

MACD CrossoverLong @ $10.80


AIM BPFH: Head & ShouldersAIM BPFH: Head & Shoulders

Neckline break$21.20


AIM BPFH: Recommendation-- BUYAIM BPFH: Recommendation BUYMethod Value Weight

Weighted Value

Discounted FCF $ 16.30 33% $ 5.43P/E Multiplier (12x) $ 16.52 33% $ 5.51 P/B M l i li (1 ) $ 18 04 33% $ 6 01P/B Multiplier (1x) $ 18.04 33% $ 6.01


4/21/08 Stock Price $ 10.01

Upside 69.3%


AIMAIM

Portfolio PerformanceCourse

O i

Portfolio

P f

General

I f ti

Security

A l i

Economic



AIM AgendaAIM Agenda

Hi i l f• Historical performance• Risk adjusted performance measures• Attribution analysis• Best & worst performersBest & worst performers• Portfolio transactions

O i f fi l f li• Overview of final portfolio


AIM Historical PerformanceAIM Historical PerformanceAIM Portfolio Returns against S&P500 as of 3/31/08

(all returns annualized)

10 00

15.00


5.00

10.00

ange

-5.00

0.00% c

ha

-10.001 year 3 year 5 year Inception


AIM S&P 500


AIM Historical PerformanceAIM Historical Performance AIM Portfolio Performance vs Russell2000 and HBI


15 00

20.00

5.00

10.00

15.00

ange

-5.00

0.00% c

ha

-15.00

-10.00

1 year 3 year 5 year Inception


AIM Russell 2000 HBI


AIM Historical PerformanceAIM Historical Performance $1 Investment Since Inception

$4 00$4.50$5.00

$2.50$3.00$3.50$4.00

$1.00$1.50$2.00$

$0.50

1/1/

96

1/1/

97

1/1/

98

1/1/

99

1/1/

00

1/1/

01

1/1/

02

1/1/

03

1/1/

04

1/1/

05

1/1/

06

1/1/

07

1/1/

08


AIM Russell 2000 S&P 500 HBI


AIM Historical PerformanceAIM Historical Performance $1 Invested 1/1/2003

$2.00

$2.50

$1.50

$1.00

$0.50

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08


AIM HBI


AIM Capitalization Composition AIM Capitalization Co position

35.3%

64.7%

Under $5B Over $5BUnder $5B Over $5B


AIM Risk-adjusted PerformanceAIM Ris adjusted Per or ance

• MeasuresMeasures– Sharpe Ratio

Treynor Ratio– Treynor Ratio– Jensen’s Alpha

• Considerations– Annualized monthly returns– Risk-free rate: 1 month T-Bill rate


AIM Sharpe RatioAIM Sharpe Ratio• Sharpe Ratio- how much excess return you are p y

receiving for the extra volatility that you endure for holding a riskier asset over a risk-free assetg

• Greater ratio, better risk-adjusted performancej p

• Formula: Portfolio return - Risk-free rate

Portfolio standard deviation


AIM Sharpe RatioAIM Sharpe Ratio

3.854 00

5.00

3.39

1.88 1 74

3.00

4.00

1.74

1.00

2.00 AIM Portfolio

S&P 500 Index 1-Yr

-1.00

0.00 Russell 2000 Index

HBI5-Yr Since Inception

-2.63 -2.54-3.00

-2.00


-4.00

AIM Treynor RatioAIM Treynor Ratio• Treynor Ratio- a risk-adjusted measure of return y j

per unit of systemic risk

• Major difference with Sharpe Ratio is the use of beta instead of standard deviation

• Formula:Portfolio return - Risk-free rate

Portfolio beta


AIM Treynor RatioAIM Treynor Ratio

11.53 11.88

15.00

8.817.56

5 00

10.00

0.00

5.00AIM Portfolio

S&P 500 Index

Russell 2000 Index 1-Yr

-5.00

ss d

HBI5-Yr Since Inception

-10.31

-8.64-10.00


-15.00

AIM Jensen’s AlphaAIM Jensen s lpha

• Jensen’s Alpha- represents the average returnJensen s Alpha represents the average return on the portfolio over and above the required rate of return given the portfolio's beta and therate of return, given the portfolio s beta and the average market return.

• If positive, portfolio is earning excess returns

• Formula: Port. Return-[Rf +Bp(RM -Rf)]


AIM Jensen’s AlphaAIM Jensen s lpha2.29

2 00

3.00

1.47

0.75

0.481.00

2.00

-0.38

-1.00

0.00 AIM Portfolio

S&P 500 Index

Russell 2000 Index-1.41

-1.59 -1.48

3 00

-2.00

Russell 2000 Index

1-Yr 5-Yr Since Inception

-4.16

-4.00

-3.00


-5.00

AIM Risk-adjusted PerformanceAIM Ris adjusted Per or ance• Since inceptionp

– Outperformed all comparable indices– Positive Alpha

• Last 1 year & last 5 years• Last 1 year & last 5 years– Underperformed HBI & S&P 500– Negative AlphaNegative Alpha


AIM Attribution AnalysisAIM ttribution nalysis

• ComponentsComponents– Allocation

Selection– Selection– Net management

I t ti ( it )– Interaction (composite)• Relative to benchmark


AIM Industry Attribution – 5 yearAIM ndustry ttribution 5 year2.0

Financials

Consumer Disc.

1.0

1.5

IndustrialsHealthcare

Utilities

Materials

TelecomConsumer Staples

Energy IT

0.5%

Energy

-0.5

0.0

-1.5

-1.0

Allocation Selection Net management


AIM Industry Attribution – 1 yearAIM ndustry ttribution year5.0

Financials

3.0

4.0

Healthcare

Utilities Telecom MaterialsConsumer Staples

Energy Industrials IT Consumer Disc.0.0

1.0

2.0

%

-2.0

-1.0

-5.0

-4.0

-3.0

Allocation Selection Net management


AIM Composite Attribution AnalysisAIM Co posite ttribution nalysis

6

2

4

0

2

1�YEAR 3�YEAR 5�YEAR

Allocation

Selection

�4

�2 Net�Management

�8

�6


AIM Biggest Winners (1 year or holding period return)AIM iggest Winners ( yea o ho d g pe od etu )

68 4%80.0% 68.4%

56.2%50.4%

40 0%

60.0%

nt

Gai

n

19.2%13.4%20.0%

40.0%

Per

cen

0.0%

tash C

orp*^

ware Bran

ds

Barrick

Gold

Exxon/M

obil

lco E

nergy

*

• Potash and Vaalco were sold on 4/22/08

Pota

Tuppe

rw Ba Ex

Vaalc


• Potash and Vaalco were sold on 4/22/08• Potash held since December

AIM Biggest Losers (1 year or holding period return)AIM iggest Losers ( yea o ho d g pe od etu )

NutriSystems PMI United Health G

McGraw-Hill

Getty I

20 0%

-10.0%

0.0%

yGroup Hill Images

40 2% 39 9%-37.6%-40.0%

-30.0%

-20.0%

-40.2% -39.9%

-60.0%

-50.0%

• NutriSystems PMI Getty sold 4/22

-66.0% -65.6%-70.0%


NutriSystems, PMI, Getty sold 4/22

AIM BuysAIM uys

Stock TickerCurrent

Price (4/24)Intrinsic

Value Upside( ) p

FCStone Group, Inc FCSX $41.66 $45.22 8.5%Boeing Co BA $78.97 $87.24 10.5%

Stocks Added to Portfolio

EMC Corp EMC $15.94 $18.22 14.3%Progress Energy Inc PGN $41.77 $48.00 14.9%Service Corp Intl SCI $10.53 $12.97 23.2%

$ $Goldman Sachs Group GS $181.20 $227.00 25.3%Republic Services Inc RSG $31.08 $39.00 25.5%Boston Private Financial BPFH $10.64 $15.40 44.7%Zh i I HOGS $10 85 $15 85 46 1%

• FCStone – Commodity risk management company• Progress Energy – Electricity utility focused in Southeast

Zhongpin, Inc HOGS $10.85 $15.85 46.1%


g gy y y• Republic Services – Waste management

AIM SellsAIM SellsCurrent Intrinsic

Stock Ticker Price (4/24) Value Upside

Weyerhaueuser WY $63.47 $52.60 -17.1%G $ $ %

Stocks Removed from Portfolio

Vaalco Energy EGY $6.47 $5.48 -15.3%Potash Corp POT $208.05 $198.00 -4.8%Getty Images GYI $32.50 $31.52 -3.0%PMI Group PMI $5 40 $5 25 2 8%PMI Group PMI $5.40 $5.25 -2.8%Apple AAPL $165.96 $167.00 0.6%Pepsico PEP $69.91 $71.65 2.0%LOOPNet LOOP $11 07 $12 47 13 0%LOOPNet LOOP $11.07 $12.47 13.0%Nutri Systems NTRI $20.72 $23.80 15.0%


AIM Sector CompositionAIM

30

Sector Co position

20

25

ition

10

15

% C

ompo

si

0

5

%


S&P AIM XXVI


AIM Our ObjectivesAIM Our Objectives

• Increase our holdings in financialsIncrease our holdings in financials

Add ili di if• Add a utility to diversify

• Decrease our exposure to consumer discretionaryy


AIM Percentage Change In HoldingsAIM Percentage Change n Holdings

144%Financial

100%

100%

144%

Other

Utilities

Financial Services

7%

14%Auto & TransTechnology

H lth C

-20%

4%

4%Health Care

Consumer Staples

Prod. Durables &

-51%

-44%

20%MaterialsConsumer Discretionary

Energy


-100% -50% 0% 50% 100% 150% 200%y

AIM New Portfolio AllocationsAIM New Portfolio Allocations

20

25

on

10

15 S&P

AIMCom

posi

tio

0

5% C


AIMAIM

General InformationCourse

O i

Portfolio

P f

General

I f ti

Security

A l i

Economic



AIM SpeakersAIM Spea ers

• Professor Ed TrubacProfessor Ed Trubac– Current economic overview

– Key point for 2008: watch the Fed

– Important economic trends for AIM portfoliop p


AIM Cleveland Research CompanyAIM Cleveland Research Co pany

• Tom Mahoney (AIM Alum) and Jason WhitmerTom Mahoney (AIM Alum) and Jason Whitmer • An independent investment research firm• Concentrates on 4 sectors:Concentrates on 4 sectors:

– Consumer, Industrial, Technology, and Healthcare.

• Research methodology: case studyResearch methodology: case study – Kroger Co., examine fundamentals; Cleveland’s research

approach.


AIM Express-1 Expedited Solutions, Inc. AIM p p ,

• CEO Michael Welch and CFO Mark PattersonCEO Michael Welch and CFO Mark Patterson

B d i B h MI• Based in Buchanan, MI– Concentrates on timely transportation of freight – Critical shipments in US, Mexico, and Canada


AIM Cross River PartnersAIM Cross River Partners

• Richard Murphy (AIM Alum) and MikeRichard Murphy (AIM Alum) and Mike McCartan

• Private investment partnership– Concentrate on small companiesp– Specialize in exhaustive, bottom-up research

• Their investment thesis on Express-1


AIM Boston TripAIM oston Trip

• Sankaty Advisors y– Distressed debt, mezzanine debt, leveraged loans

and high-yield bond investing

• Bain Capital– Private equity funds

• BNY Mellon Evolution of theory: CAPM and technology


– Evolution of theory: CAPM and technology

AIM Boston TripAIM oston Trip

• Summit PartnersSummit Partners– Private equity funds and venture capital funds

Cold calls to generate leads– Cold calls to generate leads

G l i R• Geologic Resources – Real assets metals and mining– Long/short equity fund focused on the natural

resource sector


AIM NewsletterAIM Newsletter• Objectivesj

– Allows AIM Alumni to stay up to date – Provides quarterly overview of present portfolio

• Current newsletter points of interest:New portfolio– New portfolio

– AIM Alumni updates– Boston trip review– Quick economic snapshots– Current AIM analysts’ future plans


AIM AIM WebsiteAIM AIM WebsiteAreas of Interest–Analysts and Alumni–Publications–Portfolio–News


AIM AIM on FacebookAIM AIM on Facebook


AIM AIM Contact InformationAIM AIM Contact Information

Websitehttp://aim nd eduhttp://aim.nd.edu

M il AddE-Mail Addressaim@nd [email protected]


AIM Thank YouAIM Than You

AIM Advisory BoardAIM Advisory BoardThe Notre Dame Investment Office

Scott MalpassScott Malpass

Professor Frank Reilly Rachel KarnafelProfessor Frank Reilly Rachel KarnafelProfessor Jerry Langley Professor Ed TrubacPr f ss r Bill M D n ldProfessor Bill McDonald

Please join us for pizza and a question and answer panel in a few moments


Please join us for pizza and a question and answer panel in a few moments

AIM Advisory Board PresentationAdvisory Board Presentation

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Transcript of AIM Advisory Board PresentationAdvisory Board Presentation