February 6 th 2013

February 6th 20132nd General Meeting Spring 2013

2

Meeting Schedule

IM Update

IR Presentation Info

Club Schedule & WS Trip

Interview Tips

Overview of Investment Management changes, process and perspectives

Explanation of presentation template/sample & changes from past year

Overview of semester plan & Info for Trip

Quick tips on professionalism and recruiting/internships in the spring semester

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Meeting Schedule

IM Update



Interview Tips





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Fund Operations & Mechanics: Investment Decisions

Source: ‘‘Training Student Equity Analysts and Utilizing their Recommendations in Active Portfolio Management’’ by Scott Stewart

Step

1:

Step

2:

Step

3:

Formal Stock Pitch to Investment Management- Initial research presented by either IM or IR side- Group-led Q&A and discussion- Industry drivers & company fundamentals questioned- Usually sent for second round of research

Q&A Follow-up (after 7+ days of additional research)- Analyst(s) answer previously unanswered questions- Group-led Q&A and discussion- Investment management team decides whether to repeat Step 2 or to pass onto voting process

Investment Voting Process (after IM team is satisfied)- Held after Investment Management meetings- Occurs when comfortable with fundamental research- Pros and Cons of investment discussed- Investment decision passed onto Advisor

Supported by:- Valuation methodologies- Regression analysis- Proprietary student research- Published Street research

Supported by:- Comfortable understanding of the industry and the company- No rock left unturned

Supported by:- Thorough discussion- Analysis of affect on sector / portfolio beta- Decision by committee

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Long-Short Investment Fund Pitches by Investment Management Team will

be either/and long-short

Long

– Buy the stock hoping it goes up

Short

– Borrow the stock, sell it

– Buy it back later and return the stock

– Stock price must go down

– Unlimited downside

Goal

– Reduce risk

– Improve returns

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Meeting Schedule

IM Update



Interview Tips





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Annual Club Timeline

- Industry Definition- Drivers & Risks - Industry Thesis & Opportunities

- Identify best & worst companies- Relative comparison- BUY / SELL pitches

- Summer workshop- Leadership trials

SummerSpring Semester Fall Semester

Industry Analysis Stock Analysis Review and Preparation

Supported by:- Regression analysis- Proprietary student research- Published Street research - Peer-to-peer mentorship

Supported by:- Valuation methodologies- Regression analysis- Published Street research - Peer-to-peer mentorship

Supported by:- Club management- Club resources- Leadership role incentives- Prior research

Maintained Coverage by Investment Management – Constant Re-evaluation

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Spring 2013 Company(ies) Recommendation Outline

Introductio

n,

Company

Breakdowns

Trend, Opportunity, Risk Quant.

Valuation.

Investment

Recommen.

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Fragile Industry; Worthington StrongCompany SCHN WOR

Recommendation

Sell Buy

Current Price $ 39.46 $ 27.921yr Target Price $ 34.16 $ 32.46% Upside/Downside

13.43 % 16.26 %• Worthington delivers lowest price point and highest operating

margin in manufacturing industry

• Strategic acquisitions and vertical integration have positioned industry well to satisfy yet also rely on East Asian consumers

• Industry and SCHN limited by Chinese dominance and independence, along with a supply gap leading to market dilution

Does not necessarily mean you will have a buy and sell, could be a mix of Buy/Hold/Sell

& LT or ST recommendations

Main arguments can be sourced from last semester; think of

impacts on the two companies

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Industry Definition

United States Steel Corporation(NYSE: X)

Commercial Metals Company(NYSE: CMC)

Nucor Corporation(NYSE: NUE)

Steel Dynamics, Inc.(NASDAQ: STLD)

AK Steel Holding Corporation(NYSE: AKS)

Worthington Industries, Inc.(NYSE: WOR)

Schnitzer Steel Industries(NASDAQ: SCHN)

Firms in this industry manufacture semi-finished and finished steel goods through the process of recycling ferrous scrap products and mining of iron ore.

These semi-finished or finished goods primarily service the construction, machinery, automotive industries and other steel service centers both domestic and abroad.Define Who, What, Where.

Industry groups can be created if companies compete for:

1) End Market2) Geography

3) Substitutable Products

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Steel & Scrap Metal Sector Summary Breakdown

Industry Breakdown By Market Cap ($BLN)

Steel & Scrap Metal Manufacturing$29.48B(.06%)

Steel & Iron$3786.0B

(7.8%)

Diversified Machinery $20,057.7B

(41.3%)

Industrial Goods $48,583.4B

(100%)

Breakdown By 2011 Revenue1

1Total revenue = $66,935,312,000, Major Players = Recyclers of 2M+ Tons

NUE $ 20.024 BCMC $ 7.918 BSTLD $ 7.998 B

X $ 18.626 BWOR $ 2.443 B

30%

5%10%12%12%

4%

28%NUE SCHN AKS CMC STLD WOR X

SCHN $ 3.459 BAKS $ 6.468 B

Size should be taken into consideration between the two

firms you look at. One maybe be particularly positive/negative due

to Size Advantage (synergies, scale etc.)

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Revenue Generation: Steel Recycling vs. Steel Manufacturing

Scrap Metal

Obsolete autos, machinery, rail cars, large structures

Foreign Steel Manufacturers & Domestic SMB

Diagram outlined from SCHN’s 10-K MRB/SMB Business Section. Categorized finished goods into Structural Steel, Heavy Melting Steel and Shredded Scrap.

Scrap Ferrous Metal

Crush, sort, bale and shred to classify material

Recycled Steel

Shear and torch pieces into demanded size/density/purity

Transportation Routes

Recycled Steel And

Other Components

Sheet, Long, Fabricated

Steel Products

Construction, Machinery,

Transportation, Appliances Industries

Electric Arc Furnaces = Recycled Steel Blast Furnaces = Other components

Try to Identify the value added that each company provides or

how sales are made in the industry, color coding & smart

graphics work best

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Company Snapshot – Worthington Industries Global leader in metal recycling

completing acquisitions of over 10 plants ($314 Million TTM)1.

Partners in an additional 5 recycling Joint Ventures, APB acts as major supplier to MRB.

Metal Recycling Business Locations

Auto Parts & Finished Products Locations

65%

19%

7%9%

Revenue Breakdown - Major Products

Ferrous Scrap Metal

Nonferrous scrap metal and other

Auto Parts

Finished steel Products

Diagrams provided by schnitzersteel.com 19.1% TTM Revenue

A way to look at the company breakdowns is to browse their

10-Ks.

Commonly each business has different product, geography, customer and various other

segments. All these allow you to understand how trends will

affect their competitive positioning.

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Company Snapshot: Schnitzer Steel

Business Revenue: 25.6% China, 18% USA,

9% South KoreaWeighted GDP Growth: 5.69%RofTW: 2.30%1

Risk major Euro Zone exposure in Greece, Spain & Italy

64%18%

9%9%

Metals Manufacturing Business Customers

MRB ForeignMRB Domes-ticSMBAPB

9/14 major customers are East Asian.

Emerging steel markets in China, India, Turkey and Indonesia

1Compiled from Conference-Board.org , Outlook for 2012 – China 8.6%, USA1.9% and Korea 4.8% SMB: Steel Manufacturing Business APB: Auto Parts Business

With a two company pitch, (Long/Short) trading strategy,

comparing and contrasting their segments and business units allow you to begin presenting

your argument in regards to why they are valued respectively.

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Trends & Opportunities

Strategic Pricing

Asian Market Expansion

Chinese Independence

Increasing

Niche Market LocationTrends affect an entire industry.

Opportunities are specific to the company and allow for a compettive advantage.

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WOR Competitive Advantage In Niche Western Location

Map compiled from respective web sites of each of the companies represented, in which they provide a locations map of services

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Worthington Recyling Offering Lowest Price & Highest Margin Shipping & Locational advantages

provide lowest price per LT

Higher Recycling Operating MarginWOR: 5.36%NUE: 4.85%CMC: 2.36%SCHN: .64%

+ CAGR of 5-Year OM Growth– Aggressive acquisition strategy– Own 7 deep water ports

WOR has improved Op. Margin by +.325% YoY

$350.00 $400.00 $450.00 $500.00

Avg Price Per Recycled LTon

NUESTLDCMCSCHN

$ 499.69$ 458.38

$ 417.16$ 416.00

OM 2007 OM 2008 OM 2009 OM 2010 OM 2011

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

Total Segments Operating Margin

SCHNNUESTLDCMC

Slides that directly compare and contrast your two companies in relations to opportunities and

trends will better build your case in why your valuations are

appropriate

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Chinese Steel Market Expansion Three-fold increase in

Chinese steel market

Projected Steel Production Growth – World 3.09%– Asia 7.28%

Asia projected to dominated 70% of world steel production

Increased demand of 5.22%

20012002200320042005200620072008200920100%

50%100%150%200%250%300%350%

Total Steel ProductionWorld China

Projections created from Weighting of Continent contribution to SCHN revenue & Production rates

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

Steel Production Market ShareOther

Africa

Middle East

EU

N. America

S. America

Asia

Do not forget that the analysis from last semester in many cases will still be relevant. If

your industry was positive in the fall, it should be anticiapted (excluding major news or

changes that may occur) that your trends would positively

affect both companies in some fashion

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Decline in Chinese Steel Market – Indirect Demand Decline in SCHN Demand +5%, though declining

Supply over Demand Gap– Inventory rose 28.4% higher than last year’s

average

Increased Utilization rates =Chinese Independence

Adjusting for Chinese & Developing Asian economies independence, project 2012 revenue growth at 3.14%.

Steel Supply Demand Model & Utilization Rates China 2006 2007 2008 2009 2010 2011 2012E 2013ECrude Steel Production 418.8 489.2 500 567.8 626.7 684.3 730.5 775.5Net Crude available to make finished 384.1 434.1 452.1 565.6 599.4 684.9 690.5 738.7Crude Supply Growth % 18.5% 16.8% 2.2% 13.6% 10.4% 9.2% 6.7% 6.2%Steel Demand Growth % 8.9% 12.7% 4.4% 25.0% 6.2% 8.2% 6.0% 5.8%Ave. Utilization 93.5% 90.4% 79.7% 84.2% 83.3% 82.9% 84.9% 88.1%Source: BofA Merrill Lynch Research

2010 2011 2012E 2013E0

2

4

6

8

10

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Chinese Supply-Demand

Crude Steel Supply Growth (%)

Crude Steel Demand Growth (%)If there is a specific trend that affects one of your companies primarily (in this case SCHN

significantly - ) then you should apply the analysis as the basis

to your valuation and your investment thesis

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Year 2012-e 2013-e 2014-e 2015-e 2016-e

FCF ($MM) 303.81 272.34 263.08 253.87 255.32

DCF EV $ 3,157.781yr Target Price $ 34.16

EV/EBITDA 6.5x

1yr Target Price $ 34.16

P/S 0.6x


Valuation (Note for this sample numbers are fictional)

Year 2012-e 2013-e 2014-e 2015-e 2016-e

FCF ($MM) 203.81 172.34 163.08 153.87 155.32

WACC: 9.72% Growth Rate: 2.0% Discount Rate: 3.0%

WACC: 9.72% Growth Rate: 2.0% Discount Rate: 3.0%

+ 16.26%

- 13.43%

DCF EV $ 2,157.781yr Target Price $ 34.16

EV/EBITDA 6.5x


P/S 0.6x


Your valuation will use different methods but should include

multiples analysis with DCF for both. The assumptions that

created this end product have been explained throughout the presentation. Back up slides

should include in depth breakdown of cash flows etc.

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Risks [Sample using Nuance Communications]

52-week Trading RangeStreet Analysts Price TargetsAcquired by

Strategic (AAPL)Precedent TransactionsDiscounted Cash Flow

SotP Non-GAAP Discounted Cash Flow SotP GAAPComparable Companies SotP Cross

Sectional SotPPrice Target Range

$- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00

$19.33 $19.00

$28.32 $5.63

$26.64 $12.89

$9.81 $17.90 $18.50

$31.15 $32.00

$36.99 $28.94

$32.30 $18.51

$24.12 $30.47

$20.00

Illustrative NUAN Price per Share

METHODOLOGY

To complete the risks in the presentation you will learn to create a football field diagram

measuring the effects of various scenarios and if certain risks are expected to occur. This concept in investment banking is one of

the most important skills to know

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Fragile Industry; Worthington StrongCompany SCHN WOR

Recommendation

Sell Buy

Current Price $ 39.46 $ 27.921yr Target Price $ 34.16 $ 32.46% Upside/Downside

13.43 % 16.26 %• Worthington delivers lowest price point and highest operating

margin in manufacturing industry

• Strategic acquisitions and vertical integration have positioned industry well to satisfy yet also rely on East Asian consumers

• Industry and SCHN limited by Chinese dominance and independence, along with a supply gap leading to market dilution

Remember to conclude the presentation similar to the way it opened.

A structure for presentations is:1) Tell me what your conclusion is

2) Tell me what you are going to tell me3) Tell me what you wanted to tell me

4) Conclude and recap what you told me

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Meeting Schedule

IM Update



Interview Tips





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Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

• SAF I: Semester Schedule, Sample Presentation, Organization & Introduction to ValuationFebruary 3rd

• BUFC General Meeting #2• Wednesday 5:00-6:00pm SAR101February 6th

• SAF II: Valuation Templates & Best/Worst Concept Intro • Deliverable 1: Definition, Breakdown, GenerationFebruary 10th


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• Deliverable 2: Company specific overview(s) & comparison. Products/Geography/SegmentsFebruary 17th


• SAF III: DCF Valuation Overview, Rev. Forecasting• Deliverable 3: Preliminary Trends & OpportunitiesFebruary 24th


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• Deliverable 4: Continued Analysis & Quantification or Trends & Opportunities. Preliminary RisksMarch 3rd

• BUFC General Meeting #6• Wednesday 5:00-6:00pm SAR101March 6th

• Deliverable 5: Finished Trends & Opportunities. Estimations of Risk on financial statements.March 17th

• BUFC General Meeting #7• Wednesday 5:00-6:00pm SAR101March 20th

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• SAF IV: Scenario Analysis & Presentation of Simple DCFs

• Deliverable 6: First trial run at DCF & multiplesMarch 27th

• BUFC General Meeting #7• Wednesday 5:00-6:00pm SAR101April 3rd

• SAF V: Open Office Hours (Optional)• Deliverable 7: Preliminary DCF’s, Investment

Recommendation SlidesApril 7th

• BUFC General Meeting #8• Wednesday 5:00-6:00pm SAR101April 10th

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• SAF VI: Open Office Hours (Mandatory), Summer Recruitment

• Deliverable 8: Finalized Valuation, Full Rough DraftApril 14th

• BUFC General Meeting #9• Wednesday 5:00-6:00pm SAR101April 17th

• SAF VII: Final Meeting • Deliverable 7: Finished Presentations.April 21st

• BUFC Event #1 & #2• First Round Presentations (SMG105 – TBD)April 22-27th

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• BUFC Event #3• Final Round Presentations,

Awards, E-Board RemarksMay 1st

• Wall Street Trip• First Friday in April (typically) Early April

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Wall Street Trip Typically the first Friday in April

Arrive in NYC 10:30am Lunch with alumnus & Dean Freeman Site Visit I: 12:30-2:30pm Site Visit II: 2:30-4:40pm Arrive in Boston 10:00pm

Opportunity to meet connections & alumni on Wall Street – Terrific for underclassmen

Past Site Visits:

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Meeting Schedule

IM Update



Interview Tips





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Recruiting Tips Spring 2013

Freshmen

Sophomores

Juniors

Seniors

Create a resume. Use your experiences from college and begin thinking of ways to improve experience

If interested in Finance in NYC, reach out to older members of club for alumni names & connections

See interview tips. Follow up with alumni and your applications. Look to FCC for newly posted jobs

Give advice to underclassmen in club. Introduce alumni who aided you to younger members interested

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Interview Tips (Sophomores/Juniors) Spring 2013

What are the 2 most important questions?

How do I differentiate myself?

Technical Questions?

Wrapping Up?

Do not overlook the first 5 minutes of your interview. Being asked “how are you” should be prepared for.

Pre-interview, write down the 2-3 points that you want the interviewer to walk away with. Highlight these

Pre-interview reach out to an alumnus/upper classmen in the industry. For IB attend SA Forum 2/10

Prepare questions, follow up after interview. Try to make the interview conversational

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Senior Analyst Forum (others interested can attend):Sunday February 10 @ 10:30am in CAS 114B

Next General Meeting:Wednesday February 13 @ 5pm in SAR 101

If you want to join a team please come up to the podium so that we can put you in touch with the senior analysts of the sector of your choice

February 6 th 2013

Documents

Transcript of February 6 th 2013