UtilitiesStocksPresentation
by
ShiJin,JacksonKantruss,andRyanKong
Agenda
•
•
•
•
•
SectorOverview
Calpine
AES
CMS
Recommendation
Agenda
• SectorOverview
•
•
•
•
Calpine
AES
CMS
Recommendation
SectorWeightComparison
UtilitiesinS&P500(10/30/2015)
Utilities inSIM(10/30/2015)
S&P500
SIM
Over/(Under)
CurrentHolding
Utilities
2.93%
2.44%
(0.49%)
AES
Shares
Cost
Since
Current YTD
Inception
Price Return
Return
22,000
$14.36
$9.90 (27.70%) (31.06%)
CompanyOverview
•
Largestelectricitygeneratorfrom
naturalgasandgeothermal
resourcesintheU.S.
•
Recognizedleaderindeveloping,
constructing,owingandoperating
anenvironmentallyresponsible
powerplants
•
Foundedin1984&Headquartersin
Houston,Texas
Ticker:
CPN
Sector:
Utilities
SubIndustry:
ElectricPower
CurrentPrice(USD):
$14.70
TargetPrice:
19.75
TotalReturn:
+34.4%
MarketCap(Million):
5326
DividendYield:
NoDividend
52-WeekHigh:
24.37
52-WeekLow:
$14.34
P/E(ttm):
6.92
EPS(ttm):
$2.16
PlantLocations
Source:AnnualReport
BusinessAnalysis
• ContinuetoGrow
q Acquisition,Expansions,andModernizationofexisting
plants
• Leaderindevelopingandoperatingaportfolio
ofcleanpowerplants
q 88powerplantsintheU.S.andCanada,serves19states
q 27,000megawattsofgenerationofcapacity
KeyBusinessDrivers
•
•
•
•
Economicgrowth– industrysector
Weatherconditions(2014polarvortex)
Naturalgasprice
EPA&Governmentregulations
Performance
CPNYTDReturn=(34.9%)
FinancialAnalysis
ROE
Calpine
Dynegy
NRG
Gross Margin
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
0.68
-4.25
4.80
0.37
27.45
--
--
--
-15.11
-11.47
6.00
2.42
3.32
-4.08
0.81
Calpine
Dynegy
NRG
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
39.28
36.78
47.17
40.71
39.08
--
--
28.07
21.90
33.48
31.37
26.48
27.10
28.10
25.77
FY 2013
FY 2014
ROA
Calpine
Dynegy
NRG
Operating Margin
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
0.18
-1.10
1.17
0.08
5.42
--
--
--
-7.25
-3.30
1.90
0.73
0.95
-1.12
0.36
Calpine
Dynegy
NRG
FY 2010
FY 2011
FY 2012
13.77
11.76
18.29
13.87
24.77
--
--
-7.66
-21.69
-0.76
14.78
6.99
4.16
3.04
8.01
Return on Capital
Calpine
Dynegy
NRG
Net Income Margin
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
3.77
2.05
5.89
4.37
10.83
--
--
--
-7.22
-1.70
4.98
3.44
3.37
0.74
4.09
Calpine
Dynegy
NRG
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
0.47
-2.79
3.63
0.22
11.78
--
--
-10.75
-24.28
-10.93
5.39
2.17
3.50
-3.42
0.84
Valuation
S&Pvs.Utilities
Utilitiesvs.CPN
Valuation- DCF
Valuation– TargetPrice
Recommendation- CPN
BUY(100bps)
• Catalysts
q Mostefficientnaturalgaspowerplants
q Environmentalregulation
q Lownaturalgasprice
• Risks
q Noglobaloperation
q Nodividend
q Lowcreditrating(Moody’sBa3,S&P’sB+,Fitch’sBB+)
AESCorp.
•
Apioneerinternational
corporationprovidingenergy
generation,energystorageand
energydistributionservices
•
Sixbusinesssegmentsin
worldwideinclude18countriesin
fourcontinents
•
Foundedin1981&Headquarters
inArlington,Virginia
Ticker:
AES
Sector:
Utilities
SubIndustry:
ElectricPower
CurrentPrice(USD):
$9.99
TargetPrice:
$13.00
TotalReturn:
30.00%
MarketCap(Million):
6720
DividendYield:
0.4
52-WeekHigh:
$14.49
52-WeekLow:
$9.42
P/E(ttm):
11.86
EPS(ttm):
$0.84
PlantLocations
BusinessAnalysis
• RapidlyExpansion
– 5819MWgenerationunderconstruction
• ExistingCapacity
– 35,953MWcapacity
– Served10+millioncustomersby8utilitycompanies
KeyBusinessDrivers
• Economiccycles- U.Sdomesticmarketand
globalmarket
• Fuelprice
• Innovationgenerationmethods
StockPerformance
OneYearPerformancewithS&P500
10.00%
5.00%
0.00%
7-Nov
27-Dec
15-Feb
6-Apr
26-May
15-Jul
3-Sep
23-Oct
12-Dec
-5.00%
-10.00%
-15.00%
-20.00%
-25.00%
-30.00%
-35.00%
S&P500
AES
Valuation-DCF
AESCorpration
T erminal Discount Rate =
T erminal FCF Growth =
AllUnitsinMillions
Revenue
GrowthRate
OperatingMargin
%
Expense(includeInterest)
%
OtherIncomes
IncomebeforeTax
GrowthRate
Tax
%
NetIncomeFromContOps
NetIncome(Loss)fromDiscontOps
NetIncome
AttributedNetIncome
GrowthRate
addDepreicationandAmort
%
addChangeofW.C.
%
minusCap.Expenditures
%
FreeCashFlow
Growthrate
NPV of Cash Flow s
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Dow nside) to DCF
Debt
Cash
Cash/share
2015
17514.52
2.15%
4170.21
23.81%
2627.18
15.00%
600.00
2143.03
9.5%
1.5%
2016
17942.04
2.44%
4272.00
23.81%
2691.31
15.00%
600.00
2180.69
1.76%
763.24
35%
1417.45
-20
2017
18384.38
2.47%
4377.32
23.81%
2757.66
15.00%
600.00
2219.66
1.79%
776.88
35%
1442.78
-10
2018
18752.06
2.00%
3750.41
20.00%
2812.81
15.00%
600.00
1537.60
-30.73%
538.16
35%
999.44
0
2019
19127.11
2.00%
3825.42
20.00%
2869.07
15.00%
600.00
1556.36
1.22%
544.72
35%
1011.63
0
2020
19509.65
2.00%
3901.93
20.00%
2926.45
15.00%
600.00
1575.48
1.23%
551.42
35%
1024.06
0
2021
19899.84
2.00%
3979.97
20.00%
2984.98
15.00%
600.00
1594.99
1.24%
558.25
35%
1036.74
0
2022
20198.34
1.50%
4039.67
20.00%
3029.75
15.00%
600.00
1609.92
0.94%
563.47
35%
1046.45
0
2023
20501.31
1.50%
4100.26
20.00%
3075.20
15.00%
600.00
1625.07
0.94%
568.77
35%
1056.29
0
2024
20808.83
1.50%
4161.77
20.00%
3121.32
15.00%
600.00
1640.44
0.95%
574.15
35%
1066.29
0
2025
21120.97
1.50%
4224.19
20.00%
3168.14
15.00%
600.00
1656.05
0.95%
579.62
35%
1076.43
0
1397.45
1047.45
4.06%
1435.36
8.00%
-179.42
-1.00%
2332.47
13.00%
1432.78
1082.78
2.53%
1604.96
8.73%
-165.46
-0.90%
2206.13
12.00%
999.44
649.44
-30.24%
1773.95
9.46%
-150.02
-0.80%
2062.73
11.00%
1011.63
661.63
1.22%
1912.71
10.00%
-153.02
-0.80%
1912.71
10.00%
1024.06
674.06
1.23%
1950.96
10.00%
-156.08
-0.80%
1950.96
10.00%
1036.74
686.74
1.24%
1989.98
10.00%
-159.20
-0.80%
1989.98
10.00%
1046.45
696.45
0.94%
2019.83
10.00%
-161.59
-0.80%
2019.83
10.00%
1056.29
706.29
0.94%
2050.13
10.00%
-164.01
-0.80%
2050.13
10.00%
1066.29
716.29
0.95%
2080.88
10.00%
-166.47
-0.80%
2080.88
10.00%
1076.43
726.43
0.95%
2112.10
10.00%
-168.97
-0.80%
2112.10
10.00%
-73.96
320.93
-533.95%
666.15
107.57%
560.64
-15.84%
858.61
53.15%
867.99
1.09%
877.55
1.10%
884.86
0.83%
892.28
0.84%
899.82
0.84%
907.46
0.85%
4231.43
4645.84
8877.27
-1.09%
48%
52%
100%
Terminal Value
11513.45
Free Cash Yield
7.88%
Terminal P/E
10.80
Terminal EV/EBITDA
5.09
750.06
35%
1392.97
-50
1342.97
992.97
1350.37
7.71%
-227.69
-1.30%
2539.61
14.50%
6.81
6.61
4.89
5.28
682.83
9.9
13.00
31.3%
21,784
1539
2.25
6.45
6.35
4.73
5.10
6.24
6.20
4.51
4.87
FinancialAnalysis
Recommendation- AES
Sell(100bps)
• Catalysts
– Underperformance
– Diversifiedrevenue
– ThedroppingFuelprice(coalandcrudeoil)
• Risks
– Uncertaintyonutilitystockinrecessionmarket.
– AEScurrentfinancialstrugglesin2015.
– Thechallengeoftransformationtocleanenergy
generation
CompanyOverview
•
•
•
•
Utilitiescompanyserving
Michigan’slowerpeninsula
Operatesanetworkofgeneration
plants:coal,gas,oil,wind and
hydroelectric.
Hasbothelectricandgasutility
segments
Foundedin1987&Headquartersin
Jackson,Michigan
Performance
CMSDCF
CMS Energy (CMS)
Terminal
Discount
Rate =
Analyst: Jackson Kantruss
Date: 11/8/15
Year
Revenue
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024
2025
6,253,000
6,566,000
7,179,000
7,681,530
7,988,791
8,228,455
8,475,309
8,729,568
8,991,455
9,261,199
9,539,034
9,825,206
10,119,962
10,423,561
5.0%
9.3%
7.0%
4.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
1,003,000
1,142,000
1,152,000
1,229,045
1,278,207
1,316,553
1,356,049
1,396,731
1,438,633
1,481,792
1,526,246
1,572,033
1,619,194
1,667,770
16.0%
17.4%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
(388,000)
(403,000)
(382,000)
(460,892)
(479,327)
(493,707)
(508,519)
(523,774)
(539,487)
(555,672)
(572,342)
(589,512)
(607,198)
(625,414)
-6.2%
-6.1%
-5.3%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
-6.0%
245,000
302,000
250,000
291,898
303,574
312,681
322,062
331,724
341,675
351,926
362,483
373,358
384,559
396,095
39.5%
40.1%
34.4%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
38.0%
382,000
452,000
507,000
476,255
495,305
510,164
525,469
541,233
557,470
574,194
591,420
609,163
627,438
646,261
18.3%
12.2%
-6.1%
4.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
598,000
628,000
685,000
800,000
1,000,000
1,030,000
1,060,900
1,092,727
1,125,509
1,159,274
1,194,052
1,229,874
1,266,770
1,304,773
% Growth
Add Depreciation/Amort
% of Sales
9.6%
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
1,266,000
9.6%
9.5%
10.4%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
27,000
202,000
-157,782
-39,944
-41,142
-42,377
-43,648
-44,957
-46,306
-47,695
-49,126
-50,600
-52,118
0.4%
2.8%
-2.1%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
1,408,000
1,616,000
1,400,000
1,000,000
1,030,000
1,060,900
1,092,727
1,125,509
1,159,274
1,194,052
1,229,874
1,266,770
1,304,773
20.2%
21.4%
22.5%
18.2%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
-286,000
-301,000
-222,000
-281,527
455,361
469,022
483,093
497,585
512,513
527,888
543,725
560,037
576,838
594,143
5.2%
-26.2%
26.8%
-261.7%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
Terminal
Value
10,199,454
Free Cash
Yield
5.83%
Terminal P/E
15.8
Terminal
EV/EBITDA
6.8
% Growth
NPV of Cash Flows
2,751,803
39%
NPV of terminal value
4,308,360
61%
Projected Equity Value
7,060,163
100%
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
3.0%
2012
% Growth
Operating Income
9.0%
Terminal FCF
Growth =
-2.98%
19.8
19.0
18.5
14.8
14.3
13.8
9.5
8.5
8.2
8.4
7.4
7.2
270,580
$34.87
Implied equity value/share
$26.09
Upside/(Downside) to DCF
-25.2%
CMSSensitivityAnalysis
GrowthRate
DiscountRate
$26.09
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
1.5%
$32.08
$29.16
$26.68
$24.56
$22.72
$21.11
$19.69
$18.43
$17.31
2.0%
$34.26
$30.89
$28.09
$25.72
$23.69
$21.92
$20.38
$19.02
$17.81
2.5%
$36.91
$32.98
$29.76
$27.07
$24.80
$22.85
$21.16
$19.68
$18.37
3.0%
$40.23
$35.52
$31.75
$28.67
$26.09
$23.91
$22.04
$20.42
$19.00
3.5%
$44.49
$38.70
$34.19
$30.58
$27.62
$25.16
$23.07
$21.27
$19.72
4.0%
$50.18
$42.79
$37.25
$32.92
$29.46
$26.63
$24.26
$22.25
$20.53
4.5%
$58.14
$48.25
$41.17
$35.85
$31.71
$28.39
$25.67
$23.40
$21.48
-25.2%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
1.5%
-8.0%
-16.4%
-23.5%
-29.6%
-34.8%
-39.4%
-43.5%
-47.1%
-50.4%
2.0%
-1.8%
-11.4%
-19.4%
-26.2%
-32.1%
-37.1%
-41.6%
-45.5%
-48.9%
2.5%
3.0%
5.9%
15.4%
-5.4%
1.9%
-14.7%
-8.9%
-22.4%
-17.8%
-28.9%
-25.2%
-34.5%
-31.4%
-39.3%
-36.8%
-43.6%
-41.4%
-47.3%
-45.5%
3.5%
27.6%
11.0%
-1.9%
-12.3%
-20.8%
-27.9%
-33.9%
-39.0%
-43.5%
4.0%
43.9%
22.7%
6.8%
-5.6%
-15.5%
-23.6%
-30.4%
-36.2%
-41.1%
4.5%
66.7%
38.4%
18.1%
2.8%
-9.1%
-18.6%
-26.4%
-32.9%
-38.4%
Recommendation- CMS
SELL(DONOTBUY)
• Catalysts
q Investmentsshouldpayoffincomingyears
• Risks
q Heavyspendinginrecentyears
q Increasinginterestrates
q Regulatedutility– capsupside
q Naturallimitationstogrowth– geographyandpopulation
Recommendation- Summary
Company CurrentPrice TargetPrice TotalReturn CurrentWeight
AES
CMS
CPN
Current
New
$9.99
$35.02
$14.70
$13.00
$26.09
$19.75
S&P500
2.93%
2.93%
30.0%
(25.50%)
34.4%
SIM
2.44%
2.44%
244bps
0
0bps
Recommended
Recommendation
Weight
144bps
0
100bps
Over/(Under)
(0.49%)
(0.49%)
SELL(100bps)
IDLE
BUY(100bps)
Questions?