11.30.2010
Katsman,Konstantin A
Lee,Dong Hyun
Agenda
 Introduction
 PSEG
 Xcel Energy Inc.
 Financial/Valuation Analysis
 Recommendation
 Q&A
Utilities (PEG+XEL) Performance
Overview - size as % of the S&P500(Utilities)
<Resource : S&P 500 website Nov.26.2010>
Overview-industries
 Utilities Sector
 Size(Market Cap.): 648.1B
 Industries
Market Cap
P/E
ROE %
Div. Yield %
Price to Book
Value
Electric Utilities
342.6B
12.40
11.00
3.88
1.74
Diversified Utilities
141.2B
11.80
11.30
4.52
1.57
Gas Utilities
107.8B
15.70
11.00
4.62
2.49
Foreign Utilities
46.4B
6.70
22.90
3.26
1.67
Water Utilities
10.1B
18.40
6.70
3.39
1.55
Industry
<Resource : Yahoo Finance website>
S&P 500 vs. SIM Weight
S&P 500 (%)
SIM Weight (%)
consumer
discretionary
consumer staples
financials;
15.39
health care;
11.46
industrials;
10.67
energy; 11.13
IT; 19.32
consumer
staples; 11.15
materials; 3.63
consumer
discretionary;
10.58 dividended
telecom; 3.12
receivables;
0
cash; 0
utilities;
3.55
financials;
11.83
health care;
11.58
industrials;
12.5
financials
health care
energy;
11.54
IT; 19.18
industrials
IT
consumer
staples; 9.98
consumer
discretionary;
10.57
dividended
receivables;
0.08
energy
cash; 2.74
materials;
3.84
materials
telecom; 4.04
telecom
utilities;
2.13
utilities
cash
dividended
receivables
<Resource : SIM website Oct.29.2010>
Economic Analysis – S&P500 & Utilities
% value
$ value
Over perform
Under perform
Over perform
Over perform
Under perform
S&P/Sector Performance
<Resource : S&P 500 website Nov.26.2010, SIM Reports to the Treasurer Oct.2010>
Public Service Enterprise Group(NYSE:PEG)
 PSEG is an integrated generation and energy company headquartered in
Newark, New Jersey.
 3 main subsidiaries (% of total revenue)
 PSE&G(20.4%) - a regulated New Jersey utility delivering gas and electric safely
and reliably to about 70% of New Jersey's population.
 PSEG Power(74.7%) - a major wholesale energy supplier in the Northeast with
three main subsidiaries: PSEG Fossil LLC, PSEG Nuclear LLC, and PSEG Energy
Resources & Trade LLC (PSEG ER&T).
 PSEG Energy Holdings(4.5%) - a company with domestic investments and has t
wo main energy-related businesses: PSEG Global and PSEG Resources.
PEG/S&P 500 performance(10 years)
Relative Multiple valuation(PEG)
Relative to
Industry
High
Low
Median
Current
P/Trailing E
1.3
0.76
1.0
0.82
P/Forward E
1.5
0.78
0.94
0.83
P/B
2.0
1.1
1.5
1.2
P/S
1.8
1.0
1.3
1.2
P/CF
1.8
1.0
1.3
1.0
High
Low
Median
Current
P/Trailing E
1.4
0.53
0.96
0.72
P/Forward E
1.3
0.6
0.9
0.86
P/B
1.5
0.7
1.0
0.8
P/S
1.6
0.8
1.1
1.2
P/CF
1.3
0.6
0.9
0.7
Relative to
S&P 500
Absolute valuation
Current
#Your Targ
et Multiple
*Your Target E, S,
B, etc/Share
Your Tar
get Price
(F x G)
D.
E.
F.
G.
H.
8.9
11.2
11.3
11.2
3.11
34.88
2.0
1.0
1.3
1.4
1.3
24.71
32.12
P/B
3.6
1.6
2.6
1.9
2.6
17.8
46.16
P/EBITDA
8.42
3.65
5.24
4.46
5.24
7.56
39.6
P/CF
13.6
6.1
9.2
6.8
9.2
4.96
45.6
Absolute Valu
ation
High
Low
Median
A.
B.
C.
P/Forward E
19.0
P/S
Discounted Cash Flow
Public Service Enterprise Group(NYSE: PEG)
Student: LEE, Dong Hyun
Date: 10/19/10
Year
2010E
Revenue
% Growth
12,530
Operating Income
Operating Margin
2,307
Interest and Other Income
Interest % of Sales
462
Taxes
Tax Rate
1,191
2011E
12,655
2012E
12,782
1.0%
2,430
18.4%
460
1,243
43.00%
1,579
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
1,648
1,655
1,744
1,761
1,355
43.00%
1,779
3.0%
1,369
43.00%
1,797
43.00%
1,815
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
886
7.1%
141.1
1.1%
1,300
10.4%
859
6.8%
121.1
1.0%
1,300
10.3%
833
6.5%
121.1
0.9%
1,291
10.10%
775
6.00%
129
1.00%
1,304
10.10%
782
6.00%
130
1.00%
1,317
10.10%
790
6.00%
132
1.00%
1,330
10.10%
798
6.00%
133
1.00%
1,343
10.10%
806
6.00%
134
1.00%
1,357
10.10%
814
6.00%
136
1.00%
1,370
10.10%
822
6.00%
137
1.00%
1,384
10.10%
830
6.00%
138
1.00%
1,398
10.10%
1,305
1,328
1.7%
1,317
-0.8%
1,292
-1.9%
1,305
1.0%
1,318
1.0%
1,331
1.0%
1,345
1.0%
1,358
1.0%
1,372
1.0%
1,385
1.0%
Terminal Value
36,369
Free Cash Yield
3.81%
Terminal P/E
20.0
36%
15,363
23,897
64%
100%
10.4
14.5
10.3
14.4
Current EV/EBITDA
Projected EV/EBITDA
5.4
7.5
5.2
7.3
5.2
7.3
Shares Outstanding
507
$
$
1,726
415
3.0%
2.3%
10.8
15.1
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1,709
411
20.0%
0.4%
7.63%
Current P/E
Projected P/E
1,692
2,768
4.4%
8,534
Free Cash Flow Yield
43.00%
1.0%
20.0%
3.0%
1,342
43.00%
13,841
2,741
407
2020E
1.0%
20.0%
3.0%
1,329
43.00%
13,704
2,714
403
2019E
1.0%
20.0%
3.0%
1,315
43.00%
13,568
2,687
399
2018E
1.0%
20.0%
3.0%
1,302
43.00%
13,434
2,660
395
2017E
1.0%
20.0%
3.0%
1,290
43.00%
13,301
2,634
391
2016E
1.0%
20.0%
3.0%
1,277
13,169
1.0%
2,608
387
43.00%
2015E
20.0%
3.6%
1,248
2014E
13,039
2,582
3.6%
5.0%
1.0%
19.1%
464
3.7%
Net Income
% Growth
12,910
2,439
9.0%
Terminal FCF G
rowth =
2013E
1.0%
19.2%
Terminal Disco
unt Rate =
33.73
47.13
39.7%
Terminal EV/EB
ITDA
10.1
Valuation(PEG)
 Valuation(weighted) : $41
0.3 DCF + 0.3 P/Forward E+ 0.1 P/S + 0.1 P/CF + 0.1 P/EBITDA
= 0.3*47.13 + 0.3*34.88 + 0.1*46.16 + 0.1*32.12 + 0.1*45.6 +0.1*39.6 = $40.95
 Current Price : $33.73
 Upside : 21.6%
 Dividend Yield : 1.37 (4.5%)
 Market Capital : 15.5 Billion $
Terminal FCF Growth
Sensitivity
Terminal
Discount
Rate
 Recommendation : Buy 25 BPS
rate
4.00%
4.50%
5.00%
5.50%
6.00%
8.00%
50.52
55.4
61.91
71.02
84.69
8.50%
45.15
48.79
53.47
59.72
68.46
9.00%
40.84
43.64
47.13
51.63
57.62
9.50%
37.32
39.51
42.19
45.55
49.86
10.00%
34.37
36.13
38.23
40.81
44.03
Xcel Energy Inc.(NYSE:XEL)
 Xcel Energy Inc. (Xcel Energy), is a holding company,
with subsidiaries engaged primarily in utility business
 Operations included the activity of 4 wholly owned uti
lity subsidiaries that serve electric and natural gas cust
omers in eight states
 Companies Comprise Regulated Utility Operations
 States Served: 8
- Colorado, Michigan, Minnesota, New Mexico, North D
akota, South Dakota, Texas and Wisconsin
Multiples Valuation (XEL)
Absolute
Valuation
High
A.
B.
Low
Median
C.
Current
D.
#Your
Target
Multiple
E.
F.
*Your
Target
E, S, B,
etc/Shar
e
G.
Your
Target
Price
(F x G)
H.
P/Forward E
18.8
3.6
13.6
15.3
14.5
1.40
20.30
P/S
17.2
3.5
13.6
14.3
13.8
1.67
23.05
P/B
1.9
0.4
1.4
1.5
1.4
15.93
22.30
P/EBITDA
4.86
0.87
3.92
4.33
4.1
5.52
22.63
P/CF
7.3
1.4
5.9
6.9
5.9
3.46
20.41
Discounted Cash Flow
Terminal Discount Rate: 9.0%
Terminal FCF Growth: 3.0%
TDR: 9.50%
TGR: 3.25%
Valuation (XEL)
• Current Price: $23.89
• Target Price:
=
•
•
•
•
TDR
•
.3 DCF + .3 P/FE + .1 P/B + .1 P/S +.1 P/CF + .1
P/EBITDA
.3 (22.48) + .3 (20.30) + .1 (23.05) + .1 (22.30)
+ .1 (22.63) + .1 (20.41)
Sensitivity Analysis:
21.67
TGR
Downside: 9.3%
2.25%
2.75%
3.25%
3.75%
Dividend Yield:
8.50%
24.44
26.14
28.17
30.63
4.36%
22.05
23.44
25.08
27.02
9.00%
$10.64B Market Cap
19.99
21.15
22.48
24.05
9.50%
18.22
19.18
20.29
21.57
10.00%
Recommendation:
16.66
17.47
18.4
19.46
10.50%
Sell 100%
4.25%
33.66
29.38
25.92
23.07
20.69
Q&A
 What questions do you have?