Introduction to WIC
WIC General Meeting
Executive Team
September 23rd, 2015
Agenda
Introduction to WIC

Introductions – Executive Team

Researcher Groups – Head Analysts

–
Consumer / Retail
–
Financial Institutions
–
Industrials
–
Natural Resources
–
Real Estate / Healthcare / Gaming
–
Technology / Media / Telecommunications
Portfolio Update – Jamie & Steve
–
Capital Allocation
–
2014/15 Performance
–
Recent Portfolio News

Stock Pitch Educational – Andrew & Vinayak

Summer in Review – David & Gareth
Club Overview: Leadership
Co-Presidents
Andrew C. Kim, HBA2 / University of Calgary
Vinayak Modi, HBA2 / Computer Science
Goldman Sachs, New York
Bain & Company, Toronto
Fund Managers
Jamie Cruickshank, HBA2 / Arts & Humanities
Steve Yang, HBA2 / BMOS
Silver Lake Partners, Menlo Park
Goldman Sachs, Los Angeles
Club Overview: History
WIC’s mandate is to educate members on the basic principles of investing and
financial valuation
700
$180k
32
Members
AUM
Years Old

The original investment club was started in 1983 by two HBA students; fund was established in 1997

WIC has weekly stock pitches and invests in North American publicly-traded equities

WIC is one of the largest clubs on campus (~700 members last year) and has an extensive Western and Ivey
alumni network

WIC focuses on educating members on investing and providing mentorship opportunities
Firms Represented
Club Overview: Organizational Structure
WIC is divided into six different industry groups, which are led by Ivey students
with financial services experience
Co-Presidents
VP Finance
VP Technology
Fund Managers
VP Events
Consumer Retail
(Head Analysts)
Financial
Institutions
(Head Analyst)
Industrials
(Head Analysts)
Natural
Resources
(Head Analyst)
REHG
(Head Analysts)
TMT
(Head Analysts)
Analysts
(2 Senior,
1 Junior)
Analysts
(2 Senior,
1 Junior)
Analysts
(2 Senior,
1 Junior)
Analysts
(2 Senior,
1 Junior)
Analysts
(2 Senior,
1 Junior)
Analysts
(2 Senior,
1 Junior)
Researchers
Researchers
Researchers
Researchers
Researchers
Researchers
Educational Foundation
Over the course of the year, WIC will teach the fundamental skills needed to prepare
a stock pitch presentation and invest in public equities
 Fundamental Investing and Capital Markets
 Macroeconomic Fundamentals and Research Resources
 Time Value of Money
 Introduction to Valuation
 Discounted Cash Flow Statement (DCF)
 Comparable Company /Precedent Analysis
 Finding Undervalued Companies
Analyst Recruitment Timeline
Analyst and Junior Analyst recruitment will begin this Friday with an online
application, leading to a potential investment pitch and interview
1st Round
-
Final Round
Candidate background
Convey interest in club
Academic standing
Resume drop
- Behavioral interview
- Opportunity to ask clarifying
questions
September 25 @ 7 PM
October 4
2nd Round
-
-
Investment pitch (10
minutes)
Question and answer (5
minutes)
Social @ The Frog
September 28 – October 1
Meetings and Social Events

General Meetings (1 / week) @ Wednesday 4:45 PM – 5:45 PM
– Week in Review
– Educational Component (e.g. discounted cash flow, leveraged buy-outs,
economic indicators)
– Stock Pitch Presentation & Club Vote

Researcher Meetings (6 / week)
– Educational Component
– Industry Analysis / Discussions
– Stock Pitch Development

Socials (2-3 / semester)
– The Barking Frog and the Wave
Membership Roles and Responsibilities

Analysts (5+ hours / week)
– Work under an HBA2 Head Analyst who has had finance experience
– Research, analyze and present stock pitches to general members
– Create and present educational materials on various finance topics
– Run weekly meetings and assume a leadership role in a WIC industry group
– Support the club in its mandate to educate members about investing

Researcher Meetings (2+ hours / week)
– Attend weekly researcher meetings in addition to general meetings
– Assist Analysts in the preparation of stock pitches and educational presentations

General Member (1+ hour / week)
– Attend general meetings
– Critique and vote on stock pitches
Key Initiatives

WIC Advisory Board
– Board of Ivey professors and WIC alumni that helps guide current WIC
leadership and provide continuity

WIC Investment Chatter
– Open forum on Facebook for all WIC members to talk about investing ideas and
interesting market news

WIC Recruiting Guide
– Recruiting guide targeted at all Western students that is focused on resume
building, cover letters, networking, and interviews
– Guide will also have list of questions for HBA1s undergoing recruiting that are not
in existing resources

Focused Industry Group Meetings
– Informal discussion of one new stock every meeting with higher degrees of
researcher involvement
Advisory Board
We hope to continue and expand the Advisory Board as it is a valuable resource

The WIC Advisory Board was initiated last year by former Co-Presidents Matt Ting
and Kevin Gryp

It exists to provide continuity and broader guidance with the aim of improving the club
from year to year
– Currently focused on building relationships with Alumni

The Board is not involved with the management of the fund itself or the investment
process

Originally consisted of Kevin Zhou (Co-President) and Michael King (Professor)
– The Board has now expanded with the addition of Matt Ting and Kevin Gryp

Michael King is one of the strongest supporters of WIC and has been a tremendous
help
– Currently a Finance Professor at Ivey Business School
– Industry experience in investment banking as an economist
Researcher Groups
Head Analysts
Consumer Retail (CRG)
Researcher Groups
Head Analysts
Akil Fernando, HBA2 / University of Waterloo
David Gu, HBA2 / Economics, Math
Goldman Sachs, San Francisco
Ares Management, Los Angeles
Representative Companies
Description

Includes companies in a wide range of sectors
including apparel, restaurants, supermarkets,
drug stores, online retailing, education and
household products

Broad space that is dependent on economic
conditions
Financial Institutions (FIG)
Researcher Groups
Head Analyst
Description

Includes companies in a wide range of sectors
including banks, trust companies, insurance
companies, financial technologies, and
investment dealers
Chris Martone, HBA2 / Economics

Industry has high exposure to macroeconomic
concepts and trains members to understand
Credit Suisse, Toronto
economic trends and their effects on the economy

Representative Companies
Complex nature of FIG business models leads to
use of highly technical analytical tools and
differentiated valuation techniques

Researchers will be exposed to non-traditional
investment techniques and approaches

Industry is characterized by a unique revenue
model
Industrials (IND)
Researcher Groups
Head Analysts
Gareth Domingo, HBA2 / BMOS
Vanessa Deng, HBA2 / Software Engineering
Moelis & Company, Los Angeles
Qatalyst Partners, San Francisco
Representative Companies
Description

Companies include those in the spaces of
automotive, chemical, aerospace & defence,
construction and engineering

Companies are influenced by demand for
construction (residential, commercial and
industrial) as well as demand for manufactured
products
Natural Resources (NR)
Researcher Groups
Head Analyst
Description

Commodity-driven industry group with coverage
of oil and gas (O&G), metals and mining, and
renewable energy spaces

Covers the perpetually changing supply and
demand factors of global commodity markets and
Spencer Higgs, HBA2 / Economics
their impacts on companies’ valuations
Credit Suisse, Calgary

Exposure to extremely technical valuation models
and key performance indicators which are specific
Representative Companies
to natural resource industries

Requires analysis of geopolitical events which
influence global resource trade and have impacts
far beyond O&G, metals and mining, and
renewable energy
Real Estate, Healthcare, and Gaming (REHG)
Researcher Groups
Head Analysts
Kamyar Khorasani, HBA2 / Concordia University
Kevin Xo, HBA2 / Medical Science
Moelis & Company, Los Angeles
Goldman Sachs, Los Angeles
Representative Companies
Description

REHG covers three different exciting industries

Real estate covers REITs, property managers and
real estate developers

Healthcare includes pharmaceuticals,
biotechnology and healthcare

Gaming includes lodging, gaming equipment
manufacturers, casino operators
Technology, Media & Telecommunications (TMT)
Researcher Groups
Head Analysts
Diana Fu, HBA2 / Medical Science
Shruti Patel, HBA2 / Financial Modelling
Goldman Sachs, New York
Evercore, New York
Representative Companies
Description

Technology companies include hardware,
software and information technology services

Media companies are engaged in advertising,
content creation and / or broadcasting via
television, radio, Internet and print

Telecommunications companies provide telecom
services to business and consumers such as
wireless communications systems
Portfolio Update
Jamie Cruickshank & Steve Yang
Asset Allocation
Portfolio Update
Asset Allocation
REHG
24%
TMT
6%
NR
7%
Cash
23%
IND
8%
FIG
16%
CRG
16%
CRG = Consumer Retail Group
NR = Natural Resources
FIG = Financial Institutions Group
REHG = Real Estate, Healthcare, Gaming
IND = Industrials
TMT = Technology, Media, Telecommunications
2014/2015 Performance Review
Portfolio Update
Fund Performance
16.9%
10.9%
5.6%
3.5%
WIC
S&P 500
S&P/TSX Composite
Hedge Funds
Key Highlights

WIC sold Ambarella Inc, booking a gain of 284%

WIC purchased and currently holds Amsurg Corp, which has thus far returned 76%

WIC purchased and currently holds Chemtura Corporation, which has thus far returned 42%

WIC purchased and currently holds Depomed Inc, which has thus far returned 118%

WIC sold Toromont Industries, booking a gain of 157%
Source: Prequin Quarterly Update: Hedge Funds
Summer Performance Review
Portfolio Update
Overview
Winners & Losers
16.5%
Consolidated
(0.8%)
36.3%
NR
Amsurg
26.2%
Copper
Mountain Bombardier
Depomed
REHG
(56.6%)
(47.1%)
(16.1%)
Commentary

Despite a challenging macro-economic environment, WIC’s portfolio was relatively neutral through the summer
period, with gains in foreign exchange offsetting market turbulence

Amsurg posted strong returns on the back of a “beat-and-raise” due to organic growth and completion of multiple
acquisitions

Depomed also made strong gains due to positive outlook over its drug portfolio as well as an on-going takeover
attempt from Horizon Pharma

Bombardier and Copper Mountain suffered due to a number of issues, predominantly caused by weakness in Oil
and Copper prices, respectively
Stock Pitch Educational
Andrew C. Kim & Vinayak Modi
Crafting a Story
Stock Pitch Overview
Telling a Compelling Story
Narrative

Analysis
A well-structured stock pitch is like a story – it has many components, such as an introduction, a build-up, a
climax, and a conclusion, presented in a specific order


Important to look at qualitative and quantitative factors
–
Narrative + Numbers
–
Your view of where the company is headed will drive your valuation, not the other way around
You will need to conduct internal (company-specific) analysis as well as external (industry) analysis for an effective
stock pitch

An excellent stock pitch can be executed without the use of numbers if prepared correctly
Gathering Information
Stock Pitch Overview
Sources of Information

Main sources of information to consider:
–
Company documents – 10-K, 10-Q, investor presentations, call transcripts, EDGAR/SEDAR
–
Research on company – equity research (ThomsonOne Banker), Bloomberg Terminal
–
Industry Research – news sites (WSJ, FT), industry reports, Capital IQ, IBIS
–
Valuation – primarily a DCF and public comparables
Have I Done Enough Research?

What are the main qualitative and quantitative reasons to support your recommendation?

What does the company do?

What do you think the company is actually worth?

What are key events (catalysts) that can change the stock price?

What are some risks associated with your recommendation?
General Stock Pitch Structure
Stock Pitch Overview
Structuring a Stock Pitch
1. Recommendation
2. Business Overview
• State your position on the company
• Explain what the company does
3. Investment Thesis
4. Analysis
• The company is undervalued/overvalued
because of these reasons
• Highlight key catalysts and
internal/external trends
5. Valuation
6. Risks and Catalysts
• Determine the implied share price
• List events that will impact the share price
Risk-Reward Considerations
Stock Pitch Overview
Asymmetric Risk Profile
Reward
Risk

The goal of every stock pitch is to convince someone that the company has an asymmetric risk profile

The stock, when compared with other investments on the market, will yield higher returns with a given amount of
risk

In your recommendation, state:
–
Company name, long or short or sell, current share price, price target, size of position (certain roles)
Company Overviews
Stock Pitch Overview
Company Background

List key financial metrics for the company
–
EBITDA, Revenue, Market Cap, Current
Multiples, Share Price, Dividend Yield

52-week stock chart
–
Financial
Information
52-Week Stock
Chart
Note important events in the past year
which may have impacted the company’s
performance

Company
Explain what the company actually does, the
business model, and applicable historical facts
–
Do not copy from the company’s filings –
summarize and focus

Highlight key business segments
–
Revenue by geography / product /
customer base
Business
Overview
Revenue
Breakdown
Developing an Investment Thesis
Stock Pitch Overview
Selling the Stock
Logical
Meaningful
Strong Thesis
Novel
Probable

The investment thesis is the backbone of the stock pitch – it will drive the analysis, valuation, and the ultimate
SUB POINT
recommendation

The investment thesis answers and elaborates on the following question: Why is this stock mispriced by the
market?
–
Can be more than one factor
Internal and External Analysis
Stock Pitch Overview
Being at the Right Place at the Right Time

After elaborating on your thesis, you need to analyze the internal and external factors that affect your company
–

Include qualitative arguments backed by quantitative evidence
Internal and external analysis will help justify valuation assumptions
External Factors


Regarding the industry encompassing your

Specific to your company and its operations
company

Identify key drivers that indicate your company is
Analyse trends that indicate this is the right
well positioned for stock appreciation /
industry to be investing in and a favorable time to
depreciation
be doing so


Internal Factors

Revenue growth, margins, industry specific
Highlight key developments that will serve as
metrics, senior executives, historical facts, key
catalysts for stock price movement
ratios
Can include analysis of competitors
Valuation
Stock Pitch Overview
Determining Company Value

The valuation is one of the most important parts of the stock pitch – it will determine how much the company is
actually worth and the potential upside (and downside)

Remember, valuation is about narrative plus numbers
–
You must have a solid understanding of the company, its business model, and the industry in order to be
able to accurately project financials and calculate value
–
Not being able to justify assumptions is a very common mistake
Intrinsic Valuation

Valuing a company based on its fundamentals
Relative Valuation

(e.g. cash flows, growth, risk, balance sheet)

DCF, DDM, NAV
Valuing a company based on other companies
and transactions in the market

Comparable Companies, Precedent Transactions
Valuation (cont.)
Stock Pitch Overview
Comparable Companies Analysis

Determine a list of companies that are the most comparable to the company being valued
–

Calculate relevant metrics for each comparable company
–

Filter based on business model, growth profile, size, geography, etc.
Enterprise Value, Price / Earnings, EV / EBITDA, Dividend Yield, etc.
Calculate and applicable range of multiples and apply to the target to arrive at a valuation
Discounted Cash Flow Analysis

Project cash flows for the company being valued

Calculate a discount rate and discount the cash flows

Calculate a terminal value and sum the two parts

Back out an implied share price
Do NOT worry about it if you have no idea what these are, we will cover them in detail
Sensitivity Analyses
Stock Pitch Overview
Dealing with Uncertainty in Valuation

“I would rather be vaguely right than precisely wrong.” – John Maynard Keynes

It is very difficult to accurately project financials, so it is imperative to vary key drivers and rates in your valuation to
see how the implied share price will change

Generally, it is better to sensitize variables over which a company has more control
–

Revenue growth, margins, price increases
Still important to sensitize other variables such as WACC, and terminal multiples/growth rates
Sensitivity Analysis - Revenue
36.2%
6.4%
2.9
3.9
4.9
5.9
6.9
6.7%
25.8%
45.0%
64.1%
83.3%
Weighted Average Cost of Capital
7.4%
8.4%
9.4%
3.6%
22.1%
40.5%
59.0%
77.4%
0.8%
18.5%
36.3%
54.1%
71.9%
-2.0%
15.1%
32.3%
49.4%
66.6%
10.4%
-4.7%
11.9%
28.4%
44.9%
61.5%
EV/EBITDA
EV/EBITDA
Sensitivity Analysis
36.2%
3.9
4.4
4.9
5.4
5.9
-1.0%
11.3%
19.5%
27.7%
35.9%
44.1%
Revenue Growth
0.0%
1.0%
14.8%
18.4%
23.4%
27.3%
31.9%
36.2%
40.4%
45.1%
49.0%
54.0%
2.0%
22.2%
31.4%
40.6%
49.9%
59.1%
3.0%
26.0%
35.6%
45.2%
54.8%
64.4%
Catalysts
Stock Pitch Overview
What Needs to Happen?

Oftentimes, something needs to occur in order for the share price to actually appreciate
–
Market can misprice a security for years before anything changes

Make sure catalysts have not yet occurred, otherwise they would have already been priced into the stock

Not as important for M&A deals and private equity buyouts

Do not list catalysts too far into the future or catalysts that are too vague
Investment
Thesis
Catalysts
Share
Price
Movement
Risks and Mitigations
Stock Pitch Overview
What if You Are Wrong?

List specific risk factors that can cause the company
share price to move in an unanticipated direction

Risk factors should be linked to catalysts or investment
Catalysts
thesis points

In certain roles, you may be asked how to mitigate
against certain risks (i.e. investment in other securities
or put options)

Depending on your company, you may want to conduct
an extreme downside scenario to see what the
company is worth in a worst case scenario
Risks
Common Mistakes in Stock Pitches
Stock Pitch Overview
Final Considerations

Failure to understand the company
–

Be comfortable answering questions on all aspects of the company’s operations
Not being able to justify assumptions
–
Make sure you can defend all growth rates, margins, terminal growth rates, selection of comparables etc. in
your valuation models


Poor or nonexistent catalysts
–
Need to be able to list specific events that will result in stock appreciation
–
Catalysts too far in the future will be subject to speculation
Overreliance on equity research
–
Equity research is often too optimistic and will result in aggressive price targets – use reports for data and
information but do not formulate your opinion based on them

Lack of focus
–
Remember, your investment thesis ties your presentation together – try not to stray too far from it
Summer in Review
David Gu & Gareth Domingo
Summer in Review
The American Economy and Rates
Commentary

The Federal Reserve, the central bank in the United States decided
to keep its benchmark federal funds rate at 0.25% at its most recent
September meeting
–

Rate has not changed since December 2008
The Fed has a dual mandate of (1) price stability and (2) to promote
maximum sustainable employment
–
Unemployment have reached healthy levels of 5.1% in August
–
Inflation is still frustratingly low at 0.2% largely due to
depressed energy prices

Post-announcement: investors went to safe haven assets, driving
down yields of government bonds globally

Key thoughts: The Fed now faces a dilemma of letting potential
asset bubbles become larger versus raising rates too soon and
causing persistent levels of low inflation or deflation
Summer in Review
Turmoil in China
Commentary

Chinese stock markets were the best performing indices
globally from the period of January to June, leading to the
creation of a bubble

A market crash began in June, which has been further
exacerbated by many investors facing margin calls

The Chinese government eventually stepped in to intervene and
prop up stock prices to preserve consumer confidence

Key thoughts: Given a slowing Chinese economy that is close
to missing its growth forecasts, the downward momentum will
not likely prevent further stock market volatility
5,500
YTD Shanghai Stock Exchange Composite Index (^SHSEC) - Index Value
4,500
3,500
2,500
Jan-2015
Feb-2015
Mar-2015
Apr-2015
May-2015
Jun-2015
Jul-2015
Aug-2015
Sep-2015
Summer in Review
Greece’s International Bailout
Commentary

Greece’s left wing government Syriza led by Alexis Tsipras
won the country’s elections in January under declarations it
would not honour its current program and renegotiate much
more favourable terms or accept a default
–
Brought concerns across Europe that Greece would
default and exit the Euro, leading to uncertainty across
the global markets

After months of negotiation, the country reached a deal with
European and international lenders on its third bailout
package within the last five years in July
–
It is worth €86B over the next three years
–
Includes a complete overhaul of its pension system,
changes to the labour market, and privatization plans


Key thoughts: Syriza and Prime Minister
Tsipras will now need to form a coalition
Prime Minister Tsipras announced his resignation in August
government and carry out the next steps of
and called for snap elections, which his party won on Sunday
the bailout plan
Fitbit Completes Initial Public Offering
Fitbit shares are up 28% since the initial public offering on June 18th, 2015
YTD Stock Price Performance
Event Summary

Fitbit
Inc.
(NYSE:
FIT)
produces
wearable
technology activity trackers that measure data like
the number of steps walked, quality of sleep,

$50.00
$45.00
$40.00
heart rate, etc.
$35.00
The Company raised $732 million by selling 36.6
$30.00
$25.00
million shares at $20 each

$55.00
Fitbit was originally slated to sell 34.5 million
$20.00
18/Jun/15
11/Jul/15
3/Aug/15
shares priced between $14 - $16, and later
revised the range higher to $17 - $19

Very healthy – sales have grown to $745.2 million
in 2014 from $14.5 million in 2011, profits followed
suit

Key thoughts:
–
How
are
initial
share
prices/ranges
determined?
–
How does the success of Fitbit’s IPO impact
other wearable technology companies?
Fitbit Charge
26/Aug/15
18/Sep/15
Massive U.S. Health Insurance Mergers
Size matters in the post-Obamacare healthcare system
Commentary

Obamacare summary: the federal and state-level
Transaction Summary
Acquirer
Target
Deal Value
Date (2015)
Anthem
Cigna
$54.2 B
July 24th
Aetna
Humana
$37.0 B
July 3rd
governments fund substantially all of the costs
needed to
give
economically disadvantaged
people health care and treatment

The first wave of consolidation occurred at the
provider level
–
Why?
•
The more lives you provide for, the
more bargaining power you have in
rate setting
•
Massive influx of patients required
practices to be more efficient

The second wave of consolidation is happening
now; health insurance companies are going up
against larger and more organized provider
networks

Key thoughts:
–
How will consumers be impacted by these
multi-billion dollar mergers?
5 Health Plans in a Game of Musical Chairs
Why Google Became Alphabet
Restructuring in Response to a Stagnant Share Price
“Traditional” Google
Commentary

Google is now owned by a holding company
called “Alphabet”

The “traditional” Google (search, advertising,
maps, YouTube, Android) is now just one division
with Sundar Pichai as the CEO

The venture-type projects now exist as their own
companies with their own CEOs within Google
–
Why?
•
Reduces
Moonshot Projects
“cloudiness”
equity,
since
assess
risk
in
investors
on
a
Google
can
now
company-by-
company basis
•
Improves
independence
for
each
project

Google’s strategy in the past decade has been to
funnel profits from the search and ad business
into talented people, and then giving them the
latitude to explore their potential – now it’s
organizational structure supports this
Introduction to WIC
WIC General Meeting
Executive Team
September 23rd, 2015