M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA (NYSE : ADT - Long) Prepared by...
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Transcript of M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA (NYSE : ADT - Long) Prepared by...
MCINTIRE INVESTMENT INSTITUTEAT THE UNIVERSITY OF VIRGINIA
(NYSE : ADT - Long)
Prepared by K. Wey and J. Wulkan, Memo by H. Freund| Jan. 23, 2013
McIntire Investment Institute1
INVESTMENT THESIS
Market Leader:28% Market Share, Durable Brand, Premium
Pricing
ADT Pulse Integrated Security:Higher ARPU, Lower Churn, Undervalued
McIntire Investment Institute2
Substantial Tailwinds:Insurance Discounts, Pre-wiring, False-alarm
ReductionMultiple Opportunities to Win:
Share Repurchases, Acquisition Target
FINANCIAL OVERVIEW
Price: $47.98 Avg Vol (3m): 1.90MOperating Margin: 23.14%
Market Cap: $11.15B P/E (ttm): 28.74EV/EBITDA: 10.10
Range: $34.68-48.91 Current Ratio: 0.77Debt/Equity: 0.80
McIntire Investment Institute3
Entry point
ADT IS A MARKET LEADER – 28% SHARE
4 McIntire Investment Institute
Market Share Breakdown shows ADT dominates
ADT ABLE TO CONSOLIDATE THE MARKET
5 McIntire Investment Institute
GROWTH AT EXPENSE OF MOM & POP DEALERS
Price raises are “great…[ADT raises] rates and a few people leave for the lower cost
providers, as those smaller players grow larger, ADT
buys them; everything in this industry leads to ADT"
ADT can “get parts for $200. The same parts cost me
$750-$1200. Hard to compete….totally depressing
small guys”
ADT’s brand and legacy are significant competitive advantages, creating “a
phenomenal need, without ADT people wouldn’t buy home security”
Brand image is reinforced by “advertising…helped make ADT a
household name” (VAR) and expands the “addressable market
significantly…[as customers] see it in the mainstream”
INTEGRATED SECURITY GROWING AT 23% CAGR
McIntire Investment Institute7
Benefits:1) Lower attrition
rate2) Higher ARPU3) ADT leader
PULSE ADOPTION RATES SET TO INCREASE
McIntire Investment Institute8
STREET UNDERESTIMATES PULSE ADOPTION
BY 40%
VAR: INCREASE IN # OF CUSTOMERS OPTING FOR PULSE (VS. STREET – CONSTANT)
TAILWINDS TO HOME SECURITY ADOPTION
McIntire Investment Institute9
Insurance
discounts
Pre-WiringFalse-
Alarm
Reductions
Price
Poor
Service
L-ADT = SUBSTANTIAL RETURNS FOR MII
McIntire Investment Institute13
Pulse propels ADT to higher price, MII to higher profits
Price Target: $61Upside: 27%
Higher Pulse penetration forms solid base-case
ADT continues to serve as home security market leader
Home security tailwinds push ADT to profitability
Share repurchases or ADT acquisition yield highest upside potential
FourWays to Win
with ADT