Information
Technology
Company
Presentation
Xiaorui Su, Rovin Mathew, William Wise, David Walla, Soumi Mukherjee
•
•
•
•
•
•
Sector Overview
Google
Qualcomm
Apple
GPN Network
Take-Two Interactive
Agenda
Market Size
1%
SIM Sector Break Down
S&P 500 Sector Break Down
By Jan 13, 2014
by Feb 21 2014
3%
2%
Information
Technology
Consumer
Discretionary
Consumer Staples
0%
3%
3%
Health Care
Energy
13%
Financials
3% 2%
19%
10%
Consumer
Discretionary
Financials
10%
20%
Health Care
10%
Industrials
16%
9%
Industrials
9%
16%
14%
Information
Technology
Energy
11%
12%
14%
Consumer Staples
Materials
Materials
Telecommunication
Services
Utilities
• Due to
Recommendation
• Higher expected sales
growth relative to other
sectors
• >50% steady margins in the
IT
• Growth in services
• We recommend to remain
overweight in the sector
• With cautious a cautious
eye on the economy
– Apple
– EMC Corp.
– Google
– Qualcomm Inc.
– Vantiv
• Google Price (as of March 21, 2014): $1197.46
GOOGLE (GOOG)
Mobile Advertising Market
• 2013: Mobile Ad Spending was $17.97 billion worldwide.
• 2018: Analysts expect Mobile Ad Spending to increase to $94.91
billion.
• Google Has around 46% of the mobile Ad market share.
• Display Advertising Market Projection
ns
Display Advertising
Market Projections
Positive
Risks
• Massive advertising market share.
• Very strong in Mobile Ad revenues,
especially internationally.
• Googles margins expected to
improve dramatically after sale of
Motorola Unit.
• Youtube minutes increasing
dramatically.
• Innovative Products in their pipeline
(google glass, smartwatches, etc.).
• Mobile advertising market expect to
double in growth.
• Declining Cost-Per-Click ad
rates as they move to a
single multi-platform ad
buying system.
• Massive R&D expenditures
for unknown demand of
products.
• Facing stiff mobileadvertising competition
from fast rising Facebook.
Outlook
Financials
Discount Rate
$1,550.06
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
4.5%
$1,728.45
$1,557.23
$1,414.84
$1,294.62
$1,191.82
$1,102.94
$1,025.37
5.0%
$1,867.46
$1,666.39
$1,502.17
$1,365.58
$1,250.23
$1,151.56
$1,066.24
Sensitivity Analysis
Terminal Growth Rate
5.5%
6.0%
$2,041.22
$2,264.63
$1,799.82
$1,966.60
$1,606.97
$1,735.06
$1,449.43
$1,550.06
$1,318.37
$1,398.90
$1,207.66
$1,273.12
$1,112.95
$1,166.85
• Current Price: 1197.46
Sensitivity Analysis
6.5%
$2,562.51
$2,181.03
$1,895.17
$1,673.05
$1,495.54
$1,350.47
$1,229.73
7.0%
$2,979.54
$2,466.95
$2,101.03
$1,826.79
$1,613.65
$1,443.30
$1,304.05
7.5%
$3,605.08
$2,867.22
$2,375.51
$2,024.45
$1,761.29
$1,556.75
$1,393.22
Google Multiples
• Price Target: $1,550
Current Price: $1,197
• Buy/Increase Position
• Increase SIM Portfolio from 2.9% to 4%.
• Results in a purchase of 101 additional shares.
Recommendation
• Industry: Communications Equipment
• What do they do: Design and Manufacture
Digital Communications products and services
Qualcomm
Key Financials
• Growing Earnings:
• 2013 $3.91 p/share 2014E $5.11 p/share
• 15.3% average forecasted Earnings growth rate
• Growing Revenues:
• 2010 $10.98b
2013 $24.87B
• Share Buybacks:
• Announces additional $5b in repurchases on May 5th
• Growing Dividends:
• Can Qualcomm really keep growing so fast,
they are already at a record high price.
• Share Repurchases and growing dividends are great for
stock price but also symbolize a weaker demand
• Great Geographic Diversification
• Extra protection as China converts from 2G to 3G
• Europe expected turnaround could make a big difference as
they account for 30-40% of global IT bellwethers revenue
Key points
• Price Target 80
• Current Price $78.19
• Buy
• there is still room for geographic growth
• Share repurchases and growing dividends are adding value
Recommendation
Apple Inc.
• Stock Overview
•
•
•
•
•
•
•
Price: $539.19 ( March 24th, 2014)
Market Cap 480.95B
One year Target Estimate: 592.06
Beta: 0.74 (Adjusted 0.97)
Dividend Yield: 12.20 (2.30%)
P/E (ttm): 13.40
EPS (ttm): 40.23
BUY
Apple Inc.
• Business Overview
Apple Inc.
• Growth Drivers
– Demand increase in emerging market
– New technology application ( eg. Apple TV, apple & car
companies, software)
– Cash Cow: $146 billion+ $17 billion bond offering 2012
– The decline of some major competitors, such as
Blackberry, Sony, Motorola on the smart phone market
• Risks
– Increased competition ( Coolpad, Samsung, Google, etc.)
– Market saturation
Apple Inc.
One year return: APPL 22.11% SP500 22.72
Apple Inc.
• Company Risk
Apple Inc.
• APPLE V
COMPETITORS
Apple Inc.
• APPLE V
COMPETITORS
Apple Inc.
Apple Inc.
Apple Inc.
GLOBAL
PAYMENTS
•
Prominent electronic payments
processing companies
•
Offers exhaustive services for B2B
and individual customers
•
Products range from processing
credit and debit cards, electronic
check services, money transfers as
well as cash management
•
•
Ticker
GPN
Industry
Consumer
Finance
Current Stock Price
$71.94
52 Week Range
43.73 - 73.84
Market Capitalization 5.1B
Shares Outstanding
71.92 M
Fortune 1000 company operating
across USA, UK, Canada and the
Asia-Pacific region
Beta
1.16
Operating Margin
16.24%
Awarded the top 5 card
processors of 2014
2012 Revenues
2,375M
Increase in Revenue
7.8%
Company overview
GPN Stock Performance last 6 months
1 year return +48.70%
OUTPERFORMED PEERS
Western Union (WU) , Total System Services (TSS) , Pay US , Heartland Payment system
(HPY)
ELECTRONIC PAYMENT MARKET
POTENTIAL
• VALUE DRIVERS
•
•
•
•
•
•
Technology Development
Increasing electronic transactions
Increasing GDP
Developing emerging Economies
Globalization
Increase in Consumer Expenditure
and purchasing power
RISK
Security Breach Threat
Strong Cyclical trend
• CATALYSTS
• Popularity of Nontraditional
Payment Process
• Strong Future prospects
• Consolidation in the Banking
Industry
• Big strategic partnerships
• Financing Capacity Expansion
Year
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Revenue
2,589
2,822
3,104
3,321
3,520
3,696
3,844
3,998
4,158
4,324
4,497
% Grow th
Operating Income
Operating Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
9.0%
% of Sales
Plus/(minus) Changes WC
% of Sales
7.0%
6.0%
5.0%
4.0%
4.0%
4.0%
4.0%
4.0%
417
468
515
551
584
614
638
664
690
718
747
16.1%
16.6%
16.6%
16.6%
16.6%
16.6%
16.6%
16.6%
16.6%
16.6%
16.6%
(14)
(14)
(14)
(15)
(16)
(17)
(17)
(18)
(19)
(20)
(20)
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
-0.5%
115
129
143
158
168
176
183
190
198
206
214
28.5%
28.5%
28.5%
29.5%
29.5%
29.5%
29.5%
29.5%
29.5%
29.5%
29.5%
325
359
378
401
421
438
455
473
492
512
12.7%
10.5%
5.5%
6.0%
5.0%
4.0%
4.0%
4.0%
4.0%
4.0%
288
% Grow th
Add Depreciation/Amort
10.0%
29
31
34
37
39
41
42
44
46
48
49
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
(21)
-0.8%
4
0.1%
5
0.1%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
Subtract Cap Ex
29
31
34
37
39
41
42
44
46
48
49
Capex % of sales
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
1.1%
Free Cash Flow
267
328
363
378
401
421
438
455
473
492
512
23.2%
10.6%
4.1%
6.0%
5.0%
4.0%
4.0%
4.0%
4.0%
4.0%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
2,525
3,422
5,947
5.10%
42%
58%
100%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
18.2
20.6
15.2
16.8
16.1
18.3
13.6
15.0
Shares Outstanding
72.7
Current Price
$ 71.94
Implied equity value/share
$ 81.80
Upside/(Downside) to13.7%
DCF
14.6
16.6
12.3
13.6
Terminal Value
8,875
Free Cash Yield
5.77%
Terminal P/E
17.3
Terminal EV/EBITDA
13.1
DCF ANALYSIS FOR GPN
Discount Rate
$
81.80
8.50%
9.00%
9.50%
10%
10.50%
11%
11.50%
2.50%
90.5
83.32
77.17
71.85
67.19
63.09
59.45
3%
95.6
87.5
80.6
74.7
69.6
65.1
61.2
Terminal Growth rate
3.50%
4% 4.50%
5% 5.50%
101.8 109.3 118.7 131 146.8
92.39 98.29 105.5 115 126.1
84.58 89.29 94.95 102 110.5
77.97 81.8 86.33 91.8 98.4
72.31 75.46 79.14 83.5 88.7
67.41 70.03 73.06 76.6 80.76
63.12 65.32 67.84 70.7 74.14
SENSITIVITY ANALYSIS
Current Price
Date
P/E
P/S
P/B
71.94
3/24/2014
Current Multiple Target Multiple Target Price
20.2
22.3
79.58
2.1
2.3
80.03
4.5
5.0
79.95
average
MULTIPLE APPROACH
79.85
% chg from
current price
10.6%
11.2%
11.1%
11.0%
RECOMMENDATION
CURRENT PRICE
TARGET PRICE
DCF
P/E MULTIPLE
ANALYST ESTIMATE
POTENTIAL UPSIDE
$71.94
$82
$80
$81
12-13%
BUY
TAKE-TWO
INTERACTIVE
Ticker: TTWO
Gaming Industry
Old Generation Consoles
• Xbox 360: 80.422 million units ; release Nov. 2005
• PlayStation 3: 81.443 million units ; Nov. 2006
New Generation Consoles
• Xbox One: 3.753 million units ; release Nov. 2013
• PlayStation 4: 6.210 million units; release Nov. 2013
o Improving technologies with stagnant hardware for 8 years
o Seeing good sales for new generation consoles
Take-Two Labels
• Grand Theft Auto
• Red Dead Redemption
• Max Payne
• Midnight Club
• L.A. Noire
• NBA 2k
• WWE 2k
• Bioshock
• Borderlands
o Highest Meta-critic rating for games ; Game of the Year for 2013
o Broken seven world records with latest title - GTA V
History
• EA made $2 Billion bid in
March 2008
• Media Guru, Strauss
Zelinck, takes helm Jan.
2011 as CEO
• Non-consistent earnings
•
•
•
Quality vs. Quantity
Small Portfolio of IP’s
Large demand for GTA catalog
• Moving Forward
•
•
Increasing IP’s of quality games
Successfully monetizing in-game
revenue
Financials
• Convertible Bonds
•
•
$250m at $19.09 maturing
Dec’16
$287m $21.52 maturing July’18
• 5-Yr Model CDS (as of March 25, 2014)
•
•
•
TTWO 101 bp
EA
110 bp
ATVI 118 bp
Increased share buy back and lower
debt financing necessary with
increased cash position
~ $1 Billion
Valuation
• Major Take-Two comparable are below Peer average
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
$
21.67
28.54
31.7%
• Upside dependent upon successful expansion into China &
favorable adoption of new title releases for the Holiday Season
Catalysts
• China lifted Console Ban on January 2014
• Publishers like Take-Two Interactive to gain
• PC gaming growth from $10 million in 2001 to $9.7 Billion in
2012
• Arguably second largest NBA market - TTWO owns best selling
NBA console title
• E3 2014 - June 10, 2014
• First E3 with new consoles
• New Releases will be announced
• Strong Adoption of new consoles & new IP’s from TTWO
should drive holiday demand ‘14
Discounted Cash-Flow
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
1,649
1,805
3,454
-5.90%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
(88.9)
(117.1)
132.2
184.7
48%
52%
100%
5.1
6.8
3.9
5.4
12.4
16.3
7.4
10.3
Year
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2013
$
$
21.67
28.54
31.7%
449
972
8.03
Revenue
1,214
% Grow th
Operating Margin
Interest
Interest % of Sales
Taxes
Tax Rate
Net Income
Free Cash Flow Yield
Terminal P/E
Terminal EV/EBITDA
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2,370
1,650
1,750
1,846
2,660
1,942
2,037
2,131
2,223
2,312
95.1%
-30.4%
6.1%
5.5%
52.0%
5.2%
4.9%
4.6%
4.3%
4.0%
5
535
276
307
264
612
288
312
337
363
389
0.4%
22.6%
16.7%
17.5%
14.3%
23.0%
14.8%
15.3%
15.8%
16.3%
16.8%
31.4
11.0
10.9
10.7
11.1
10.6
11.7
12.2
12.8
13.3
13.9
2.6%
0.5%
0.7%
0.7%
0.6%
0.4%
0.6%
0.6%
0.6%
0.6%
0.6%
5
14
53
59
51
120
55
60
65
70
75
2.8%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
20.0%
(29)
% Grow th
Terminal Value
14.0%
9.0%
121.0
Operating Income
Debt
Cash
Cash/share
Terminal Discount Rate =
Terminal FCF Growth =
212
237
225
502
244
264
285
306
328
-58.4%
11.9%
-5.2%
123.5%
-51.4%
8.2%
7.8%
7.4%
7.0%
11
10
9
8
9
12
8
7
6
6
5
% of Sales
0.9%
0.4%
0.5%
0.5%
0.5%
0.45%
0.40%
0.35%
0.30%
0.25%
0.20%
Plus Changes WC
4.59% % of Sales
Subtract Cap Ex
20.4 Capex % of sales
(119)
25
(26)
64
(20)
(20)
(20)
(20)
(20)
(20)
(20)
-9.8%
1.1%
-1.6%
3.6%
-1.1%
-1.1%
-1.1%
-1.1%
-1.1%
-1.1%
-1.1%
6,691
Add Depreciation/Amort
510
1628.3%
15.7 Free Cash Flow
% Grow th
17
9
9
9
10
13
8
8
7
6
5
1.4%
0.4%
0.5%
0.5%
0.53%
0.48%
0.43%
0.38%
0.33%
0.28%
0.23%
(154.731)
536
186
300
204
481
224
244
264
285
307
-446.4%
-65.3%
61.2%
-31.9%
135.8%
-53.6%
9.0%
8.5%
8.0%
7.5%
Final Word
• Recommending a BUY on TTWO : 1-year price target of $29
• Major Drivers:
• China catalyst & industry growth
• Trend toward normalized earnings with increased IP’s
• Conservative management strategy
• Release of GTA V for next generation consoles
• Risk Factors
• Slowing consoles sales could impact growth
• Unsuccessful console adoption in China will hinder
recommendation
Summary
Company
Price
TP
Rec.
Est. Return
Current Weight Rec. Change Rec. Weight
Google
1197.46
1550
BUY
29.44%
290 bps
110 bps
400 bps
Qualcomm
79.19
81
BUY
2.29%
483 bps
0 bps
483 bps
Apple
539.19
592.06
BUY
9.81%
436 bps
57 bps
493 bps
EMC^2
26.37
27.6
HOLD
4.66%
437 bbs
0 bps
437 bbs
Activision Blizzard
20.66
19.98
HOLD
-3.29%
0 bps
0 bps
0 bps
Global Payments
71.94
81
BUY
12.59%
0 bps
150 bps
150 bps
Take Two Interactive
22
29
BUY
31.82%
0 bps
150 bps
150 bps