INFORMATION
TECHNOLOGY
COMPANY PRESENTATION
Siddharth Agrawal
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Alex Fullerton
Autumn Semester 2014
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May Lim
Professor Royce West
OVERVIEW
Sector Weightage
YTD QTD S&P 500 9.90% 1.13% Tech 15.66% 4.76% S&P500 SIM Utilities, 1.93% Telecommunica
tion Services, 2.36% Utilities, 2.98% Materials, 3.50% Telecommunica
tion Services, 2.50% Consumer Discretionary, 11.98% Consumer Staples, 9.41% Information Technology, 19.44% Dividend Receivables, 0.08% Materials, 2.91% Consumer Discretionary, 10.94% Consumer Staples, 9.58% Information Technology, 21.54% Energy, 9.01% Energy, 10.32% Industrials, 10.35% Cash, 0.89% Industrials, 6.93% Health Care, 13.57% Financials, 16.09% Health Care, 13.67% Financials, 18.75% Source: SIM September 2014 Monthly Appraisal
Performance by Market Cap
Industry Group Software & Services Technology Hardware & Equipment Semiconductor Total Information Technology Companies Apple Inc Microsoft Corp Google Inc Alibaba Group Facebook Inc IBM Oracle Corp Intel Corp Samsung Electronics $ Trillion 3.94 2.56 1.03 7.53 $ Billion 584.84 359.51 349.42 220.92 196.53 181.61 167.81 155.36 151.23 Source: Bloomberg
SIM Portfolio
Activision Blizzard
Inc., 1.27%
Vantiv Inc., 4.32%
Apple Inc., 3.33%
Qualcomm Inc., 2.42%
EMC Corp, 4.15%
Google Inc. , 4.35%
Source: SIM September 2014 Monthly Appraisal
Recommendation
•  Overweight ▫  Currently: + 2.1% , Recommend: +2.25% •  BeneOits ▫
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Innovation Opportunities in Emerging Markets Growth Potential Upcoming Trends: Cloud, Big Data, Mobile Payments, Security •  Risks ▫  Weakening Macro Economy ▫  Valuation in the Internet Software & Services Sector –  20% index, 46 P/E ▫  Intense Competition –  Overseas low-­‐cost “white box competitors” ▫  Piracy, Security, Intellectual Property ▫  Regulations
Recommendation: Industry
Mkt Cap Mkt Cap Software & Services Technology Hardware & Equipment Semiconductor & Semiconductor Equipment Total ProOit 1Y Rev. P/E P/E Margin Growth 2014E 2015E 3.94T 52.3% 17.90% 5.85% 17.6 15.42 2.56T 34.0% 14.89% 1.25% 12.86 11.65 1.03T 13.7% 17.66% 4.52% 14.31 12.97 7.53T 100.0% Overweight: Semiconductors ▫  High pro`itability and growth at signi`icantly cheaper ▫  Strongest performer YTD ▫  Currently zero exposure Source: Bloomberg
Activision Blizzard
Inc.
Activision Blizzard Inc., publishes, develops and distributes interactive
entertainment software and peripheral products. The company’s
products cover diverse game categories, including action/adventure,
action sports, racing, role playing, simulation, first-person action,
music-based gaming and strategy.
Activision Blizzard Inc. (ATVI)
•  Stock Overview ▫
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Price (USD)-­‐ 19.90 (Nov 17th 2014) Market Cap (USD) – 14,308.7M One year Target estimate -­‐ $25.00 Dividend Yield – 1.01% P/E (USD) – 22.81 T12M EPS – 0.87 52 week range – $16.55-­‐$24.18 1 Year Price Chart
Source: Bloomberg
Business Overview
Net Revenue by Geographic Segmentation 100% 90% 7% 100% 40% 60% 60% 50% 40% 30% 20% 7% 80% 80% 70% Net Revenue by Product Segmentation 40% 93% 53% 20% 10% 0% Asia Paci`ic Net Revenue (In Million USD) 343 Europe 1,830 North America 2,410 0% Distribution Platfrom Revenues Net Revenue (In Million USD) 323 4,260 Growth Drivers
•  Destiny ▫  Sold over 9 million units to date ▫  Setting stage for upcoming DLC & sequel
•  Boost from Call of Duty; Advanced Warfare •  Blizzcon ▫  Overwatch announced! ▫  Updates in digital platforms look promising Risks to Recommendations
•  Loss dominance of existing franchise •  Shift to mobile platforms pose risks •  Uncertainty of performance of new products Company Risk
Source: Bloomberg
Industry Comparison
Vantiv, Inc.
Headquartered in Cincinnati, Ohio, Vantiv is a leading integrated payment processor. It offers a wide range of traditional and innovative payment processing and technology solutions to `inancial institutions and merchants of any sizes. Prior to going public in 2012, Vantiv was once a processing solutions subsidiary of Fifth Third Bank until June 2009. It currently operates in two business segments, Merchant Services and Financial Institution Services. As of 2014, the company offers services to approximately 400,000 merchant locations and 12,000 ATMs in 46 states. Stock Overview
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Ticker: VNTV (NYSE) Current Stock Price: $30.68 Target Stock Price: $36.23 1 Year EPS Growth Rate: 20% Market Capitalization: $4,467.2M Dividend Yield: None VNTV TTM Stock Price $34 $32 Oct-­‐14 Sep-­‐14 Aug-­‐14 Jul-­‐14 Jun-­‐14 May-­‐14 Apr-­‐14 Mar-­‐14 Feb-­‐14 Jan-­‐14 Dec-­‐13 $28 Nov-­‐13 $30 Source: Bloomberg
Economic Drivers
•  Consumer Spending Shows Upward Trending •  Growing Government Spending Consumer Spending (In USD billions) Consumer Payment Systems Transactions (billion) $11,200 180 $11,000 150 $10,800 120 $10,600 90 $10,400 60 $10,200 Q3/2015E Q2/2015E Q1/2015E Q4/2014E Q3/2014 Q2/2014 Q1/2014 Q4/2013 Q3/2013 Q2/2013 Q1/2013 Q4/2012 Q3/2012 Q2/2012 Q1/2012 $10,000 30 0 2006 2008 2010 Cards 2012 Cash 2014E 2016E Checks Source: The Nilson Report, BMO Capital Market
Financial Analysis and Valuation
Net Revenues (millions) Net Income (millions) Earnings Per Share Analyst Consensus Analyst Consensus Analyst Consensus Guidance FY2014E 1,397.3 1,397.5 367.7 367.2 $1.85 $1.86 $1.85-­‐$1.90 FY2015E 1,637.0 1,636.2 426.5 425.9 $2.18 $2.15 -­‐ FY2016E 1,767.1 1,766.9 470.8 470.3 $2.41 $2.40 -­‐ Source: Bloomberg, Company’s Website, Analyst’s Estimates
Segment Forecast
(In thousands) Merchant Financial Institution Total Revenues Less: Network Fees and Other Costs Merchant Financial Institution Net Revenues MS Chg YoY % of total revenues FIS Chg YoY % of total revenues Network Fees and Other Costs -­‐ MS Chg YoY % of total revenues Network Fees and Other Costs – FIS Chg YoY % of total revenues Net Revenues Chg YoY FY2016E FY2015E FY2014E FY2013A FY2012A FY2011A FY2010A $2,632,509 $2,406,315 $2,114,513 $1,639,157 $1,409,158 $1,185,253 $756,930 568,683 516,984 492,366 468,920 454,081 437,168 405,202 3,201,192 2,923,300 2,606,879 2,108,077 1,863,239 1,622,421 1,162,132 1,216,453 1,110,854 1,042,751 801,463 709,341 217,681 175,398 166,840 133,978 131,256 1,767,058 1,637,048 1,397,287 1,172,636 1,022,642 9.40% 13.80% 29.00% 16.32% 18.89% 82.2% 82.3% 81.1% 77.8% 75.6% 10.00% 5.00% 5.00% 3.27% 3.87% 17.8% 17.7% 18.9% 22.2% 24.4% 620,852 135,883 865,686 56.59% 73.1% 7.89% 26.9% 476,932 119,063 566,137 65.1% 34.9% 9.51% 6.53% 30.11% 12.99% 14.25% 30.18% 38.00% 38.00% 40.00% 38.02% 38.07% 38.27% 41.04% 24.11% 5.13% 24.53% 2.07% -­‐3.41% 14.13% 6.8% 7.94% 6.0% 17.16% 6.4% 19.16% 6.4% 14.67% 7.0% 18.13% 8.4% 52.91% 10.2% DCF Model
Revenue % Growth 2014E 1,397,287 (In thousands, except ratio)
2015E 2016E 1,637,048 1,767,058 17.2% 7.9% 2019E 2020E 2021E 2022E 2023E 2024E 2,164,912 2,240,684 2,319,108 2,400,276 2,484,286 2,571,236 5.0% 3.5% 3.5% 3.5% 3.5% 3.5% 842,275 43.5% 904,494 43.9% 951,038 43.9% 980,811 43.8% 1,017,120 43.9% 1,052,607 1,088,818 43.9% 43.8% 1,127,401 43.8% (137,207) -6.1% 593,148 42.5% Interest expense-net % of Sales (80,344) -5.8% (106,408) (106,023) -6.5% -6.0% (117,744) -6.1% (127,708) -6.2% (131,899) -6.1% (142,320) -6.1% (146,840) -6.1% (152,187) -6.1% (157,535) -6.1% Non-operating
expenses % of Sales (76,152) (62,208) (84,819) (90,647) (91,286) (100,388) (102,684) (105,500) (110,164) (113,627) (117,528) -5.5% -3.8% -4.8% -4.7% -4.4% -4.6% -4.6% -4.5% -4.6% -4.6% -4.6% Taxes Tax Rate 68,991 10.5% 120,290 18.8% 122,902 18.2% 100,365 15.8% 120,724 17.6% 123,732 17.2% 125,115 16.9% 132,608 17.2% 136,151 17.1% 140,560 17.1% 146,117 17.1% Net Income % Growth 367,661 426,484 16.0% 470,829 10.4% 533,519 13.3% 564,776 5.9% 595,019 5.4% 615,805 3.5% 636,692 3.4% 659,452 3.6% 682,444 3.5% 706,221 3.5% 77,549 85,126 91,887 90,970 106,433 109,666 112,752 115,724 121,515 125,147 129,347 5.6% (21,547) 5.2% (10,454) 5.2% (9,408) 4.7% (10,305) 5.2% (11,706) 5.1% (11,781) 5.0% (12,282) 5.0% (12,833) 5.1% (13,167) 5.0% (13,664) 5.0% (14,158) -1.5% 65,581 -0.6% 70,827 -0.5% 75,077 -0.5% 100,520 -0.6% 95,156 -0.5% 99,500 -0.5% 104,492 -0.6% 110,554 -0.5% 111,865 -0.6% 116,060 -0.6% 120,609 4.7% 4.3% 4.2% 5.2% 4.6% 4.6% 4.7% 4.8% 4.7% 4.7% 4.7% 358,082 430,330 20.2% 478,232 11.1% 513,664 7.4% 564,348 9.9% 593,404 5.1% 611,783 3.1% 629,029 2.8% 655,935 4.3% 677,867 3.3% 700,801 3.4% Free Cash Flow % Growth 784,574 44.4% 2018E 2,061,656 6.5% Operating Income Operating Margin Add Depreciation/
Amortization % of Sales Plus/(Minus) Changes
in WC % of Sales Subtract Capital
Expenditure Capex % of Sales 715,390 43.7% 2017E 1,935,522 9.5% DCF Model
VNTV DCF Assumptions Cost of Capital 10.5% Terminal Growth Rate 3.5% Average Effective Tax Rate 17% Diluted Shares Outstanding 199M VNTV DCF Results (in thousands, except share price and ratio) Implied Equity Value $7,196,403 Implied Share Price $36.16 Current Share Price $30.68 Share Price Upside to DCF 17.86% Target Price
Absolute Valuation Current Target Multiple Target/ Current 0.89 1.02 1.39 0.97 P/E 33.76 30.00 P/B 6.85 7.00 P/S 1.80 2.50 P/EBITDA 8.77 8.50 DCF Target Price based on Weightage Upside Potential over Current Stock Price ($30.68) Expected EPS Weightage Target Price 1.20 10% 5% 10% 5% 70% 36.00 31.29 42.65 29.76 36.16 36.23 18% Risks to Recommendations
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Fraud and Security Breaches Banking and Retail Industries Consolidation Rapid Developments in Technology, Products, and Services Government Regulations HPY Stock Reaction to Data Breach GPN Stock Reaction to Data Breach $19 $55 $17 $52 $15 $13 $49 $11 $46 $9 $7 $43 Dec-­‐12 Nov-­‐12 Oct-­‐12 Sep-­‐12 Aug-­‐12 Jul-­‐12 Jun-­‐12 May-­‐12 Apr-­‐12 Mar-­‐12 Feb-­‐12 $40 Jan-­‐12 Nov-­‐09 Oct-­‐09 Sep-­‐09 Aug-­‐09 Jul-­‐09 Jun-­‐09 May-­‐09 Apr-­‐09 Mar-­‐09 Feb-­‐09 Jan-­‐09 Dec-­‐08 $3 Nov-­‐08 $5 - HPY announced breach on Jan 20, 2009; GPN announced breach on Mar 30, 2012
Source: Yahoo! Finance
EMC Corporation
Federation of IT Infrastructure
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Data Storage Backup Content Management Data Security Virtualization Data Analysis Source: Bloomberg
Investment Thesis
•  Long-­‐term exposure to global macro-­‐economic trends –  “Third Platform”: Cloud, Big Data, Mobile, and Social. •  Valuation Disconcert with VMware •  Activist Pressure Current Price: $30.00 DCF: $36 Sum of Parts: $35 Economic Drivers
•  IT Spending •  Total up •  Storage down Source: Bloomberg
Risks
•  A poor macro-­‐economic envenoming that would adversely affect IT spending. •  The commoditization of core storage through white box servers and open source storage. •  Increased competition, epically from software only providers like Amazon’s Web Based Service and Microsoft’s Azure. •  CEO Succession, as Joe Tucci is 66 years old and is expected to retire in 2015-­‐2016, but no succession plans have been announced Recommendation
Recommendation
•  Continued Overweight Position in Tech ▫  Vantiv: $36.23 ▫  Activision: $24.88 ▫  EMC: $36.2 •  Risks: ▫  Current IT spending environment is weak ▫  Threat of White Box Commoditized Infrastucture Q&A
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