INFORMATION TECHNOLOGY
Company Presentation
Tsung-Hang (Michael) Lin, Nick Locallo, Mallory Mason,
Shane McMahon, Mehdi Mirsaneh
FIN 7225
4/14/15
Sector Recommendations
•
•
•
Maintain sector weight:
- overweight by 2.83%
Positive Drivers:
- increasing margins
- higher yield
- better growth prospect
Risks factors:
- lofty valuation in Internet Sector
- fierce competition in hardware
- destructive innovation
- regulation
Source: SIM Fund Appraisal -1/30/2015
Sub-sector Recommendations
2014 P/E
2015E P/E
Div Yield
Profit Margin
Est. Sales/Share Growth
Semiconductor & Equipment
18.44
17.34
2.46
15.81
8.2%
Software & Services
20.5
22.39
1.02
19.68
0%
Technology Hardware & Eqt.
14.33
16.51
1.97
14.64
6.1%
Favorite: Semiconductor
•
•
•
•
Better risk/return relation
High entry barrier
Benefit from IoT
Equipment, IDM or Foundry will be better choice than fab-less design house
SIM vs S&P 500
Div. Reinvest Return 52 weeks
S&P 500
17.02%
Information Tech
Sector
22.66%
SIM Portfolio: 22.60%
Materials, 2.58%
Telecom Services ,
2.90%
[CATEGORY NAME],
[VALUE]
YTD
2.68%
1.99%
S&P 500: 19.77%
Utilities, 0.00%
Consumer
Discretionary, 8.42%Consumer Staples,
Cash,
9.08%
1.53%
Energy, 7.26%
Telecom Services ,
Utilities, 3.05%
2.32%
[CATEGORY NAME], Materials, 3.17%
[VALUE]
Consumer
Discretionary,
12.66%
Consumer Staples,
9.76%
Energy, 8.07%
Industrials, 8.05%
Industrials, 10.31%
Healthcare, [VALUE]
Financials, 19.32%
[CATEGORY NAME],
[VALUE]
Financials, 16.28%
Current SIM Holdings
Company
Market Value % of Portfolio
Activision Blizzard Inc.
$138,623
1.38%
Apple Inc.
$622,150
6.18%
EMC Corp
$362,952
3.60%
Google Inc.
$410,478
4.08%
Qualcomm Inc.
$224,662
2.23%
Vantiv Inc.
$527,800
5.24%
Source: SIM Fund Appraisal -1/30/2015
A Cell Phone Electronic Board
• Qualcomm designs and develops wireless
communication chips for mobile devices.
• Qualcomm’s competitive advantage:
• Patented Designs
• Integration of Products
Qualcomm’s Market Shares
LTE Design
Baseband Design
Main Market Driver: Sales of Smart
Phones and Internet of Things!
Smartphone Share in
Semiconductor
Application
Multiples Valuation
Qualcomm vs Peers
Qualcomm vs Sector and S&P 500
Qualcomm
Broadcom Corp.
P/E P/B
15.73 3.09
31
2.98
P/S P/CF
4.6 15.95
2.9 17.4
Texas Instrument
20.6
5.6 17.11
QCOM vs
IT Sector High Low Median Current
P/E
1.27 0.5
0.77
0.73
P/B
1.1 0.69
0.8
0.69
P/S
3.76 1.34 1.89
1.34
3
---2.7
4.3
2.8
QCOM vs
S&P 500 High Low Median Current
P/E
1.19 0.61
0.9
0.79
P/B
1.77 1.04 1.21
1.04
P/S
5.41 3.21 3.28
3.21
4.54
Intel Corp.
15.58 3.06
Marvell Technology 17.41 2.11
NVIDIA Corp
19.55 2.45
Maxim Integrated
27.42 3.92
Micron Technology 9.58 1.98
16.37
12.7
16.37
15.12
11.14
DCF Valuation
Discount factor
Long term growth rate
Year
10.75%
4.5%
2014
Revenue
$
Net Income
$
Free Cash Flow
$
Current P/E
2018E
2019E
2021E
2023E
2025E
29,503 $
32,184 $
33,793 $
5.5%
5.6%
5.0%
5.0%
5.0%
5.0%
5.0%
33.1%
36.7%
38.7%
36.0%
35.0%
34.0%
34.0%
34.0%
7,967 $
8,718 $
9,363 $
9,848 $
9.4%
7.4%
8,589 $
9,262 $
16.3%
%Grow th
2016E
27,948 $
26,487 $
%Grow th
Operating Margin
2015E
8,135 $
-2.3%
9,752 $
10,053 $
2.1%
9,952 $
37,257 $ 41,076 $ 45,286
10,767 $ 11,871 $ 13,088
5.0%
5.0%
5.0%
10,655 $ 11,748 $ 12,952
16.5
Projected P/E
Current EV/EBITDA
3.0
Projected EV/EBITDA
1,714
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
$
67.97
78.51
15.50%
Risks
• Antitrust investigations in China
•
$1Bn fine in early 2015
• Consolidated customers; Apple and
Samsung
• Fierce competition by other device
developers including Intel, Samsung
and so on
Activision Blizzard is the world leader in interactive gaming. The
company is composed of two main operating units, Activision
Publishing and Blizzard Entertainment. Activision Publishing develops
and publishes online, personal computer, video game console,
handheld, mobile, and tablet games worldwide. The company
publishes interactive software through digital downloads as well as
retail outlets. Blizzard Entertainment develops, hosts, and supports
subscription-based massively multi-player online role-playing games.
Stock Overview
• Ticker: ATVI
• Current Price: $22.96
• Target Price: $25.76
• Market Cap: 16.62 B
• Shares Outstanding: 719 M
• Dividend Yield: 1.02%
• 52-week Price Range: $17.73-$24.18
• Price to Earnings: 20.35
• Earnings per Share: 1.13
12 Month Price Chart
Growth and Risk Outlook
• Destiny and Call of Duty: Advanced Warfare
downloadable content will drive digital sales
until the launch of the next chapter of Call of
Duty in November
• This chapter has been in the making for three
years by Treyarch, the company behind Black
Ops (franchise sales record holder), and expects
it to sell at least as well as Advanced Warfare
• The launch of Call of Duty Online, the free-toplay game that was launched in China will not
contribute much to this years results but will
help build a consumer base
Income Statement
DCF Valuation
Recommendation:
BUY
Vantiv, Inc. is an electronic payment processing company headquartered
in Cincinnati, Ohio. The company had been providing payment
processing solutions for 40 years, catering services to both financial
institutions as well as merchant businesses. Since the corporate
rebranding in 2011, (previously Fifth Third Processing Solutions) Vantiv
has expanded its services through key acquisitions of premier brands
such as Element Payment Services and Mercury Payment Systems.
Vantiv Business Analysis
Lines of Business
•
Merchant Services
• Over 500,000 merchant locations
• $15.5 Billion in purchase transactions (28% growth)
• Second largest merchant transaction acquirer
•
Financial Institution Services
• Over 1400 FI services (1% growth)
• Mostly credit unions and regional and community banks
Business Analysis cont.
Key business drivers
• Expansion of client base through improved distribution channels and strategic
acquisitions
• High scalability of integrated technology platform
• Liability shift to occur October 1, 2015
• Growth of Europay-MasterCard-Visa (EMV) chip-based card transactions (~600M
EMV chip-based cards to be issued by October date)
• Growing demand for EMV-card acceptance and improvements in Merchant
Services and FI Services businesses
• Continued demographic changes in favor of adoption of new payment
technologies
• Increasing focus on value-added services related to data security and fraud
protection
• Increasing need of information solutions (big data) from Merchants and Financial
Institutions
Vantiv Financial Analysis
Financial Highlights (2014)
• Total revenue - $2.577 B (22% growth)
• Merchant Services net revenue $1.066 B (27% growth, fueled by 22%
increase in transactions and 4%
increase in net revenue / transaction)
• FI Services net revenue - $336 M ( <1%
growth)
• Income from operations - $315 M (11%
decline)
• Net Income - $169 M (19% decline)
Going Forward (2015 -2025)
• Revenue growth rate - 5%
(conservative compared to consensus)
• Net Income growth rate - 12-14% (in
line with guidance)
Vantiv Valuation
Vantiv Valuation cont.
Comparison with Competitors
•
•
Lower P/E and P/B compared to HPY
Lower P/S compared to Visa
IT Sector Valuation
•
•
Comparison with HPY and
Sector
IT sector seems to be near the industry median in
terms of pricing
IT sector also seems to be fairly priced in or slightly
underpriced compared to the S&P 500
•
Vantiv seems to be
relatively undervalued
when compared with the
most comparable
competitor, Heartland
Payment Systems
DCF Valuation
•
•
•
•
Terminal Discount Rate
- 9.5%
Terminal FCF Growth
Rate - 5%
Revenue Growth Rate 5%
Net Income Growth
Rate - 12-14%
Vantiv Recommendation
Recommendation
•
•
•
•
•
Ticker: VNTV
•
Current Price: $39.31
Target Price: $45.73
Potential Upside: 16.3%
Recommendation: BUY (1126 shares at current price to
•
raise Vantiv holding by 76 bps to 6% of SIM portfolio)
Primary Catalysts
•
•
•
•
Risks
Positive growth in all areas of the business as
technology platform is highly scalable
Further transaction acquisition- and cost-synergies will
continue as a result of Mercury and Element
•
acquisitions
Positive demographic changes including adoption of
EMV chip-based cards and liability shift
•
Vantiv’s ability to provide value-added services
including information solutions and data security
If Vantiv cannot keep up with
rapid technology
developments, use of service
and revenues could decline
The payment processing
industry is highly competitive
and Vantiv faces many larger,
more financially flexible
competitors
Pricing pressure from larger
competition could depress
services revenue
Security breaches are a going
concern
Sector Recommendations
Maintain sector weight:
• overweight by 2.83%
• Positive Drivers:
• increasing margins
• higher yield
• better growth prospect
• Risk factors:
• lofty valuation in Internet
Sector
• fierce competition in hardware
• destructive innovation
• regulation
•
Stock Recommendations
Company
Activision Blizzard Inc.
Apple Inc.
EMC Corp
Google Inc.
Qualcomm Inc.
Vantiv Inc.
% Upside/
Target Price (Downside) Recommendation
$30.80
$134.01
N/A
$582.93
$72.37
$45.73
34.1%
6.9%
N/A
7.7%
15.5%
16.3%
BUY
HOLD
N/A
HOLD
BUY
BUY