UtilitiesSectorPresentation
by
ShiJin,JacksonKantruss,andRyanKong
Agenda
•
•
•
•
•
•
BusinessOverview
SectorOverview
EconomicAnalysis
FinancialAnalysis
Valuationanalysis
Recommendation
BusinessOverview
• Utilities
– Lowprofitmargin,highcapitalexpenditure,
naturalmonopolizedindustry
• Utilitiessector
– Defensive,cyclicalstockswithconstantdividend
yieldandlowvolatility
Today’sUtilities
UtilitiesinS&P500(Sep-2015)
2.37%
Utilities inSIM(Sep-2015)
2.30%
0.00%
3.10%
2.77%
2.87%
2.33%
12.88%
13.16%
9.90%
20.37%
10.01%
20.61%
6.51%
7.09%
9.99%
16.28%
14.87%
0.05%
3.42%
9.83%
15.99%
13.28%
VariousIndustries
INDUSTRIES
Market Cap.(inbillions)
Average P/E
Diversified Utilities
18381.2
16.90
ElectricUtilities
4606.4
15.90
Foreign Utilities
17.0
14.80
Gas Utilities
1921.6
20.40
WaterUtilities
1862.1
19.40
Sectorcomponents
Numberof
Constituents
MaxMarket
Min Market
Capital(inmillion) Capital
MeanMarket
Capital
MedianMarket
Capital
28
49,194.25
18,592.98
16,156.79
4,262.14
Thefivelargestcompaniesinutilitiessector:(orderin
marketcap.)
1. DukeEnergy
2. NextEraEnergy
3. Dominion Resources
4. Southern Co.
5. Exelon
SectorPerformance
QTDreturn
YTD return
3Yrs.Return
S&P 500
8.30%
0.99%
13.77%
S&P500Utilities
1.05%
-7.50%
5.82%
S&P500IT
10.67%
6.13%
16.80%
S&P500Financials
6.11%
-2.80%
14.85%
S&P500HealthCare
7.69%
4.17%
21.21%
ResourcefromSpindices
Businessenvironments
Recently,Utilitiessectorisunderperformance,
comparedtoothersectorinS&P500.
• Macroeconomics
• Microeconomics
Macroeconomics
ResourcefromFidelity
Microeconomics
• ExternalFactors
– HeavyRegulations
– Weather
• SupplyandDemand
– PopulationGrowth(residential)
– PMI(industrial)
– FuelPrice
OverviewsofUtilityIndustry
• BarrierstoEntry:high
Costmillions ofdollarstobuildpower planetsandestablishdistribution network
• BuyerPower:moderateorlow
Fewutilitysuppliers inoneregion
• Supplier:high
High consumption onfuel
• ThreatsofSubstitutes:low
Customershaveverylittlemethods tosolveutilityserviceneeds
• Rivalry:low
Fewcompetitorsinsameindustry
Agenda
• SectorOverview
• BusinessOverview
• EconomicAnalysis
• FinancialAnalysis
• Valuationanalysis
• Recommendation
Utilities,CPI,andGDP
UtilitiesandNaturalGas
UtilitiesandRisingInterestRates
UtilitiesRegressedonS&P500
Alpha:0.050
Beta:0.456
Correlation:0.376
R^2:0.142
UtilitiesRegressedonBrentCrudeOil
Alpha:0.093
Beta:-0.056
Correlation:-0.109
R^2:0.012
UtilitiesRegressedonBloomberg
CommoditiesIndex
Alpha:0.136
Beta:0.021
Correlation:0.015
R^2:0.000
UtilitiesRegressedonCoal
Alpha:0.133
Beta:0.002
Correlation:0.008
R^2:0.000
Agenda
• SectorOverview
• BusinessOverview
• EconomicAnalysis
• FinancialAnalysis
• Valuationanalysis
• Recommendation
Utilitiesvs.S&P500
Leverage!
DebtcomparedtoS&P500
UtilitiesROAandROE
Margins
UtilitiesSector
Agenda
– SectorOverview
– BusinessOverview
– EconomicAnalysis
– FinancialAnalysis
– ValuationAnalysis
– Recommendation
ValuationAnalysis
S&P500vs.UtilitiesSector
AbsoluteBasis
Asof09/01/2015
P/E
P/B
P/S
P/EBITDA
10YearMedian
S&P500 Utilities
16.60
15.54
2.28
1.54
1.32
1.31
7.20
4.93
Current
S&P500 Utilities
19.92
15.18
2.49
1.50
1.69
1.47
9.38
4.72
RelativeBasis
Asof09/01/2015
P/E
P/B
P/S
P/EBITDA
10YearMedian
Current
0.91
0.71
0.93
0.65
0.89
0.60
0.87
0.50
S&P500vs.Utilities
S&P500
P/E
P/B
P/S
P/EBITDA
Utilities
TechnicalAnalysis
Util
S&P
SubSectorPerformance
asof10/30/2015
Utilities
ElectricUtilities
GasUtilities
Multi-Utilities
S&P500
YTD
-7.50%
-9.78%
14.66%
-2.29%
0.99%
1year
-1.79%
-4.06%
15.48%
4.43%
4.90%
3year
19.50%
11.20%
78.56%
33.43%
47.27%
5year
38.10%
27.49%
194.91%
54.00%
75.73%
byFidelity
UtilitiesSector
Agenda
– SectorOverview
– BusinessOverview
– EconomicAnalysis
– FinancialAnalysis
– ValuationAnalysis
– Recommendation
Re-Cap
BullsSide
– Defensivestrategy
– Highdividend(3.8%vs
2.1%ofS&P)
– SteadyRevenueand
Earning’sGrowth
BearsSide
– Heavilyregulated
– Commodityprice
dependence
– Modestgrowth
Recommendation
• Asof09/30/2015SIM,
Sector
S&P500
SIM
+/-
Utilities
3.10%
2.30%
-0.80%
• Recommendation
– Slightlyunderweightvs.S&P,butraisethecurrent
weight
Sector
S&P500
SIM
+/-
Utilities
3.10%
3.00%
-0.10%
UniversityEndowmentFunds
ByForbes, Jan.2015
Questions?