advisory board meeting – spring 2013€¦ · total portfolio value $101,978.05 portfolio holdings...

Advisory Board Meeting – Spring 2013July 31st, 2013

William Li, Chief Executive OfficerDustin Fader, Chief Investment Officer

Jing Xu, Chief Strategy Officer

Agenda

2

SAF Investment Fund Overview

Stock Selection: Process & Methodology

Portfolio Performance

Investment Action

Stock Pitches

Next Steps

Global Macro Outlook

Click to edit Master title style

FUND OVERVIEWhttp://www.saf.uwaterloo.ca/SAF/SAFInvestmentFund.html

SAF Investment Fund

The Team – Introductions

4

Student Investment TeamL to R: (Back) Michael Blake, William Ye, Howard Leung, Henry Yu, Harsh Shah, David Chan, Chi Liu, Marco Chan, Hao Qin, Andrew Xue, Derek Wan, Sean Bak(Center) Tiffany Chung, Charis Zhang, Jing Xu, Linda Teng, William Li(Front) Bojan Joncevski, Krishna Murali, Courtland Livesley James, Louis Hong, Dustin Fader

Faculty

5

Faculty:L to R: Alan Douglas, Craig Geoffrey, Ranjini Jha, Andrew Ecclestone

Advisory Board

Aazar Zafar CA, CFA

Principal

Anish Chopra CA, CFA, CBVMD and Head (Core Canadian Equities)

John Gort CA, CFA

Vice President and CFO

Dr. Thomas ScottDirector

Dennis HuberVice President, Finance

Jeffrey D. StaceyFounding Partner

Industry Mentors

Derek ChuCPA, CAAssociate Director

Aly Hadibhai CA, CFADirector

Kevin Huynh CA, CFAIB Analyst

Simon Kwan CAAnalyst

Dan LavricCFAPortfolio Manager

David MiddletonCA, CFAManaging Director

Saran Ananth

Senior Risk Analyst

Ohad LedererCA, CPA, CFAInvestment Analyst

Industry MentorsNiall GlynnCFAAssociate

Mike WilliamsCFA, MBA, MTax, P. EngPortfolio Manager

Jin Li

Research Associate

Ian GutwinskiCAIB Analyst

Meng WangIB Analyst

Investor Policy Statement

9

Category Restriction

Asset Class Canadian Equities

Market Capitalization

$300 Million +

Debt Rating S&P greater than B (or equivalent)

IndividualHoldings

< 10% of Fund assets

Industry Sectors

< 25% of Fund assets

TradingVolume

< 5% of 10-day daily average

Exemption during one-year

“phase-in period”

WL11

WL11 Compliance!!!William Li, 2013-04-15


STOCK SELECTION: PROCESS & METHODOLOGY

SAF Investment Fund

Quantitative Ranking Methodology

11

• Define universe of stocks in each industry

• Select metrics relevant to the industry

• For each metric, rank universe from first to last

• Add up rankings across all metrics to get final “Score” for each stock

• Arrive at final ranking based on each stock’s “Score”


PORTFOLIO PERFORMANCESAF Investment Fund

Performance – Last 4 Months

13

$94,000

$96,000

$98,000

$100,000

$102,000

$104,000

$106,000

$108,000Fourth Semester (May 1/13 – Jul 23/13)

S&P/TSX Composite Index Total Portfolio Value S&P/TSX Total Return Share Pricing

Performance – First Round of Funding

14

$48,000

$49,000

$50,000

$51,000

$52,000

$53,000

$54,000

$55,000

$56,000

$57,000First Deposit to Second Deposit (Jul 31/12 – Feb 1/13)

S&P/TSX Composite Index Total Portfolio Value S&P/TSX Total Return Index

Performance – Second Round of Funding

15

$90,000.00

$92,000.00

$94,000.00

$96,000.00

$98,000.00

$100,000.00

$102,000.00

$104,000.00

$106,000.00Second Deposit until Now (Feb 04/13 – Jul 23/13)

Portfolio Value S&P/TSX Comp. Index S&P/TSX Total Return Index

Performance Data

16

1st Funding 2nd Funding

7/31/12 2/01/13 2/04/13 7/23/13

Equity Value 0.00 39,823.29 39,711.67 83,023.11

Cash 50,000.00 12,326.93 62,326.93 17,845.34

Dividends 0.00 508.60 508.60 1,550.59

Total Portfolio Value 50,000.00 52,658.82 102,547.20 102,419.04

Period Return 5.32% -0.12%

Average %Cash Held 42.50% 21.72%

Period Dividend Yield 1.02% 1.51%

Capital Gain 4.30% -1.64%

Period Return Value Added Period Return Value AddedS&P/TSX Composite Index 9.47% -4.15% 0.22% -0.34%S&P/TSX Total Return Index 11.80% -6.48% 1.87% -2.00%

Performance Data Since Start of Trading, 31 July 2012 to Current, 23 July 2013

17

Return Since Inception 2.42%

Dividend Yield 1.55%

Capital Gain 0.87%

Average Cash Holdings 32%

S&P/TSX Composite Index 9.26%

Value Added -6.85%

S&P/TSX Total Return Index 13.50%

Value Added -11.08%

Holdings

18

100 Shares

35 Shares

$2,741.90

$78.34

$32.82

$3,282

53 Shares

$30Limit

$1,590

Holdings

19

Company NameShares

Purchased Purchase Date

Average Purchase

Price

Share Price as of July 23,

2013Total

Holding Return to Date

Agrium Inc. 50 Dec. 5/12 101.41 91.31 $4,566 -9.96%Black Diamond Group Limited 239 Mar.28/13 20.96 24.84 $5,937 18.51%The Bank of Nova Scotia 164 Mar.27/13 59.18 58.35 $9,569 -1.41%

Capital Power Corporation 185/268

Dec.5/12 & Mar.27/13

21.77/21.64 21.38 $9,685 -2.99%

Fortis Inc. 150/115Aug.3/12 &

Apr.15/1333.38/33.35 32.4 $8,586 -5.78%

Goldcorp Inc. 104/189Dec.15/12 &

Mar.28/1338.05/33.48 30.69 $8,992 -16.39%

Sales

20

Company NameShares

PurchasedPurchase

Date

Average Purchase Price Status Sell Price Total Funds

Return to Date

BCE, Inc.119/

91Dec.5/12 &

Mar.27/1342.08/46.72 Sold 42.52 $8,929 -7.97%

Canadian Tire Corp. Ltd. 76 Dec.5/12 66.01 Sold 83.93 $6,379 27.15%

Glentel Inc. 475 Mar.27/13 19.67 Sold 17.75 $8,431 -9.74%National Bank of Canada

65/63

Aug.3/12 & Mar.27/13

74.76/75.59

Reduced(-35) 78.34 $2,742 11.06%

Suncor Energy Inc. 316 Mar.27/13 31.00

Reduced(-100)

32.81/32.82 $3,282 5.84%

Holdings

21

$14.50$41

$21

New Purchases

22

Company NameShares

Purchased Purchase DateAverage

Purchase PriceTotal Purchase

Cost

AutoCanada Inc. 176 Jul.26/13 27.75 $4,890.95

Avigilon Corporation 278 Jul.26/13 18.07 $5,030.41

Artis Real Estate Investment Trust 350 Jul.31/13 14.50 $5,088.90

Martinrea International Inc. 423 Jul.26/13 11.69 $4,953.05

Cameco Corporation 238 Jul.30/13 21 $5,004.95Valeant Pharmaceuticals International, Inc. 53 Jul.26/13 94.13 $4,995.84

Number of Shares Limit Price

Total Investment

Baytex Energy Corp. 189 $41 $7,749

Potential Buys

Stock Allocation

23

Portfolio Holdings 31 July 2013

Company Name Market Value

Percentage of Total

Portfolio

Agrium Inc. $4,357.00 4.27%

Artis Real Estate Investment Trust $5,075.00 4.98%

AutoCanada Inc. $5,031.84 4.93%Avigilon Corporation $5,143.00 5.04%Bank of Nova Scotia $9,513.64 9.33%Baytex Energy Corp. 0.00%Black Diamond Group Limited $5,874.62 5.76%

Cameco Corporation $4,998.00 4.90%Capital Power Corporation $9,440.52 9.26%Fortis Inc. $8,556.85 8.39%

Goldcorp Inc. $8,488.21 8.32%

Martinrea International Inc. $5,076.00 4.98%

National Bank of Canada $7,347.93 7.21%Suncor Energy Inc. $7,011.36 6.88%Valeant Pharmaceuticals International, Inc. $5,050.90 4.95%

Total Equity Value $90,964.87

Cash $11,013.18Total Portfolio Value $101,978.05

Portfolio Holdings23 July 2013

Company Name Market Value

Percentage of Total

Portfolio

Agrium Inc $4,565.50 4.46%

Bank of Nova Scotia $9,569.40 9.34%

BCE INC NEW $8,864.10 8.65%

Black Diamond Group Limited $5,936.76 5.80%

Canadian Tire $6,344.48 6.19%

Capital Power Corporation $9,685.14 9.46%

Fortis Inc $8,586.00 8.38%

Goldcorp Inc $8,992.17 8.78%

National Bank of Canada $9,978.88 9.74%

Suncor Energy $10,500.68 10.25%

Total Equity Value $83,023.11 81.06%

Cash $19,396.42 18.94%

Total Portfolio Value $102,419.53 100.00%

Sector Allocation

24

Sector Current

Consumer Discretionary 7.6%

Consumer Staple 0.00%

Energy 12.7%

Financials 23.6%

Health Care 0.00%

Industrials 7.2%

Information Technology 0.00%

Materials 16.3%

Telecommunication Services 10.7%

Utilities 22.0%

TSX

4.8%

2.8%

24.9%

33.2%

2.2%

6.7%

1.5%

16.6%

5.4%

2.0%

Change in Sector

Holdings

-2.1%

0.0%

-4.9%

+0.50%

+5.5%

+4.8%

5.5%

+3.4%

-10.7%

-2.2%

New

5.5%

0.0%

7.8%

24.1%

5.5%

12.0%

5.5%

19.7%

0.0%

19.8%

Diff (New & TSX)

1.0%

-2.8%

-16.7%

-13.6%

3.7%

6.1%

4.4%

4.3%

-5.4%

19.0%

Portfolio Capitalization

25

Small18%

Mid33%

Large49%

By Portfolio Weighting

Small-Cap23%

Mid-Cap31%

Large-Cap46%

By # of Stocks

Current Correlation MatrixSecurity

AGU BDI BNS CPX FTS G NA SU

AGU 1 0.295 0.467 0.171 0.348 0.161 0.424 0.507

BDI 0.295 1 0.34 0.211 0.334 0.055 0.289 0.394

BNS 0.467 0.34 1 0.207 0.537 0.128 0.667 0.596

CPX 0.171 0.211 0.207 1 0.325 0.123 0.251 0.222

FTS 0.348 0.334 0.537 0.325 1 0.158 0.469 0.493

G 0.161 0.055 0.128 0.123 0.158 1 0.114 0.279

NA 0.424 0.289 0.667 0.251 0.469 0.114 1 0.529

SU 0.507 0.394 0.596 0.222 0.493 0.279 0.529 1

Average

0.358

0.314

0.415

0.258

0.376

0.205

0.398

0.450

New Correlation Matrix

27

Security AGU BDI BNS CPX FTS G NA SU ACQ AVO AX.UN CCO VRX

AGU 1 0.295 0.467 0.171 0.348 0.161 0.424 0.507 0.113 0.07 0.33 0.422 0.282

BDI 0.295 1 0.34 0.211 0.334 0.055 0.289 0.394 0.117 0.107 0.375 0.303 0.294

BNS 0.467 0.34 1 0.207 0.537 0.128 0.667 0.596 0.142 0.111 0.342 0.459 0.387

CPX 0.171 0.211 0.207 1 0.325 0.123 0.251 0.222 0.093 -0.011 0.363 0.219 0.151

FTS 0.348 0.334 0.537 0.325 1 0.158 0.469 0.493 0.151 -0.012 0.429 0.387 0.27

G 0.161 0.055 0.128 0.123 0.158 1 0.114 0.279 0.032 0.069 0.134 0.246 0.099

NA 0.424 0.289 0.667 0.251 0.469 0.114 1 0.529 0.171 0.067 0.34 0.454 0.337

SU 0.507 0.394 0.596 0.222 0.493 0.279 0.529 1 0.187 0.092 0.414 0.595 0.375

ACQ 0.113 0.117 0.142 0.093 0.151 0.032 0.171 0.187 1 0.065 0.277 0.112 0.038

AVO 0.07 0.107 0.111 -0.011 -0.012 0.069 0.067 0.092 0.065 1 -0.208 0.018 -0.061

AX.UN 0.33 0.375 0.342 0.363 0.429 0.134 0.34 0.414 0.277 -0.208 1 0.245 0.218

CCO 0.422 0.303 0.459 0.219 0.387 0.246 0.454 0.595 0.112 0.018 0.245 1 0.143

VRX 0.282 0.294 0.387 0.151 0.270 0.099 0.337 0.375 0.038 -0.061 0.218 0.143 1.000

Average

0.358

0.314

0.415

0.258

0.376

0.205

0.398

0.450

0.190

0.087

0.332

0.359

0.262786

Portfolio Characteristics

28

After Limit TradesPortfolio Volatility: 12.53%

Beta: 0.876

Sharpe Ratio: 0.98

Expected Capital Return: 11.6%

Dividend Yield: 3.24%

Expected Total Return: 14.84%

CurrentPortfolio Volatility: 12.29%

Beta: 0.852

Sharpe Ratio: 0.85

Expected Capital Return: 10.05%

Dividend Yield: 3.03%

Expected Total Return: 13.08%


TERM INITIAL MACRO OUTLOOKSAF Investment Fund

Market sentiment has been strong Confidence seem to be driven more by expectation than

by actual economic numbers Europe remains a key risk China GDP expected to grow again at 8% level Japan is taking bold actions to boost growth U.S. growth is expected to pick-up and remain key focus Canada will likely lag behind

Light in the Tunnel

30

Past few years have been macro driven due to economic uncertainty and weakness European debt crisis China slowdown fear

Recent economic indicators have shown positive trend Job growth Housing data Manufacturing activity

Current market environment Decreasing correlation in stock price More dispersed intra-sector stock price volatility Low market volatility

Shift From Macro to Fundamental

31

Strategy for the Term

32

• Low correlation• High individual

stock standard deviation

Sector bests more difficult

• Low market volatility

Favours value investing • Focus on

fundamental analysis

• Look for quality and liquidity

Stock picking


GLOBAL MACRO OUTLOOKSAF Investment Fund


INVESTMENT ACTIONSAF Investment Fund

July 31, 2013


SOLD POSITIONSSAF Investment Fund

Bell CorporationUpdating Coverage

July 31, 2013

Linda Teng, Portfolio ManagerCharis Zheng, Analyst

Bell Corporation (TSX:BCE)

37

Valuation Metrics 1 Year Performance vs. Sector IndexRecent News

Fund Portfolio Data Football Field Valuation (July 25, 2013)Investment Outlook

• Bell-Astral deal closed on 2013/07/05 for $3.4B

• Sony Xperia Z coming exclusively with Bell

• Bell Mobile TV Expands with Sportsnet and other channels

• Verizon Communications Inc. may enter the Canadian wireless market; will affect dividend and free cash flow growth

$0 $10 $20 $30 $40 $50 $60

52 - Week Range

Analysts' Concensus

DCF without Verizon

DCF with Verizon4.6x-8.6x multiple,

2.94%-6.94% WACC

4.6x-8.6x multiple, 2.94%-6.94% WACC

Share Price ($) $42.55 Market Cap ($mm) $33,014.23 P / EPS 2012 15.78 P / EPS 2013E 14.00 P / B Current 3.09 EV/ EBITDA 2012 6.69 Debt/EBITDA 2.00 EBITDA/Interest 9.24 ROE 2012 20.71 Dividend Yield (%) 5.48

Current Price ($) $42.55 Shares Owned 210.00 Market Value $8,935.50 Initial Purchase Date 13-03-22Avg Price Purchased $44.37 % Until Target Price -1.6%Return - Inception -4.1%Return - TTM 1.4%Return - YTD -0.2%

Recommendation SellSAF SIF Target Price $41.86 Analyst Target Price $44.60 Previous Target Price $51.59 Stop Loss: Soft: -Investment Thesis: Bell-Astral DealLeast affected by Verizon entryRisks: Spectrum Auction,Consolidation with Astral, Verizon

708090

100110120

Bell CorporationComposite Index Telecommunication Services

Canadian Tire (TSX:CTC.B)

38

Holding Summary June 5, 2013 Valuation Update

Reasons for Sale

Purchase SaleNews Event

Holding Period Nov. 30, 2012 – July 24, 2013

Purchase Price $66.01

Sale Price $83.93

Return 27.15% (excl. dividends)

Index Return 3.54% (excl. dividends)

Company announcement of REIT, 18 million square feet at $3.5 billion

New valuation using sum‐of‐parts

Revised target price to $87

Hold recommendation awaiting market reaction to Loblaw's REIT IPO

Lack of clear information surrounding proposed REIT too high

Increased uncertainty does not fit desired risk profile


NEW PURCHASESSAF Investment Fund

July 31, 2013

Louis Hong, Portfolio ManagerSean Bak, Analyst

AutoCanadaInitiating Coverage

Consumer Discretionary Sector

AutoCanada (TSX:ACQ)

41

Holding Summary Investment Thesis

Purchase Price $27.75, July 24, 2013

Market CapNet Debt

$607.26 mm$227 mm

Dividend Yield 2.71%

P/E 2013E 16.31x

ROE 20.4%

Debt/EBITDA 5.09

Valuation

Blended target price of DCF, comparable, and analyst estimates

Buy recommendation to $31.55 target (13% upside from current)

Direct play on Canadian economic recovery and increased automobile spending

Strong growth through acquisition of additional dealerships

PurchaseEquity offering

Key Risks

1. Ability to acquire new dealerships2. Interest rate sensitivity

MartinreaInitiating Coverage

Hao Qin, Portfolio ManagerTiffany Chung, AnalystMichael Blake, Analyst

Industrials Sector

Business SummaryMarket Profile Company Description

Manufacturer of automotive parts and equipment

One of the largest metal forming and fluid systems management companies in North America

Market leader in aluminum parts through the Honselacquisition

Over 12,000 employees in 37 production facilities worldwide

Key Statistics

Ticker Symbol:Market Capitalization: Net Debt52 Week Price Range: Beta: Dividend Yield: P/E: EV/EBITDA: Debt/EBITDADebt Rating:

MRE$1,001 mm $410 mm$6.41-$12.05 1.64 1.0% 25.83x 4.5x 1.90BB (low)*

* Not Rated; BB (low) is our internal assessment using the four largest credit rating agencies’ rating methodologies.

Growth Opportunities

Acquisitions of distressed companies

Opportunity for top line growth through additional program wins as well as bottom line growth through EBITDA margin expansion

Honsel (lightweight aluminum manufacturer) will see increased sales in Europe and China

Leading to closing of discount to peers – 4.6 EV/EBITDA vs. peer average of 5.1-5.4

Description Major Transactions

Company Date PriceThyssenKrupp 11/30/2006 $275 mmHonsel AG 07/29/2011 $129 mm

N. America focused – 79% Ford/GM strong earnings (13%

increase in revenue) - chance to secure additional contracts

US Auto Sales at pre-recession levels: 16 mm units in 2013 with 1.5-2 mm YoYgrowth through 2020

Lower interest rates, credit availability and increased home construction are driving growth

Average car age: 9.28 in Canada, 10.8 in US

North American Exposure for the FundDescription Revenue by Geography (2012A)

Revenue by Geography (2017E)

28%

33%

18%

19%2%

CanadaUSAMexicoEuropeRest of World

19%

30%24%

24%

3%

Canada

USA

Mexico

Europe

Rest of World

Focused Margin ImprovementsDescription Revenue Projections

Shelbyville started to generate positive growth margins in Q1 2013

Hopkinsville is still running net operating losses from high launch costs – room for improvement

Focused on cost reductions through operational improvements

Gross margin expected to grow to 13% in the near term

10.0%

10.5%

11.0%

11.5%

12.0%

12.5%

13.0%

13.5%

14.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$0.00

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

$6,000.00

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Gross Margin Projections

ValuationDiscounted Cash FlowSum of Present Value of Future Cash Flows 125.4Terminal Value 1457.8Enterprise Value 1583.2Less: Long‐Term Debt 357.8Less: Minority Interest 66.2Less: Pension Liabilities 64.8Add: Cash and Cash Equivalents 29.4

Implied Equity Value 1123.8Number of Shares Outstanding (Diluted) 83.7Implied Share Price $13.42Upside % 14.90%WACC CalculationCost of DebtCost of Debt 5.4%Tax Rate 29.6%

After‐Tax Cost of Debt 3.8%Cost of EquityRisk‐Free Rate 2.5%Market Risk Premium 5.5%Levered Beta 1.15

Cost of Equity 8.8%WACC 7.4%

Captain Gain: 13.9%

Dividend Yield: 1%

Total Return: 14.9%

BUY

July 31, 2013

Howard Leung, Portfolio ManagerDavid Chan, Analyst

Henry Yu, Analyst

Artis REITInitiating Coverage

Financials Sector

Financials, Spring 2013

49

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

S&P/TSX Capped Financials Index National Bank of Canada (TSX:NA)The Bank of Nova Scotia (TSX:BNS)

Summary of SAF SIF Decisions

50

• Held since Aug 2012• June 2013 Update: HOLD

National Bank

• Held since March 2013• June 2013 Update: HOLD

Bank of Nova Scotia

• Top Financials Pick• June 2013 Coverage: HOLD• Since been revised to a LIMIT BUY at $14.50/Unit, executed today

Artis REIT

Artis Metrics

Ticker AX.UN IndustryCurrent Price $14.94

Market Cap $1.9 B

NAV Per Unit $16.10

5 Year Beta 1.17 0.66

Distribution/Yield $1.08/7.1%

6.3%

P/AFFO 11.9x 14.2x

AFFO Payout Ratio 81.8% 88.1%

Average CAP Rate 6.4% 6.2%

Debt/GBV 50.2% 51.2%

Leases Avg. Term to Maturity

4.9 Yrs

Average Rent $12.41 $13.51

MetricsBusiness Description

Diversified REIT Operates in Western Canada,

Ontario, and US 223 Commercial Properties

Dividend Yield

Artis Decision

52

Weighted PriceWeighted Price

50% NAV • $16.10

50% NAV • $16.10

40% Multiples• $16.92

40% Multiples• $16.92

10% Analyst• $18.00

10% Analyst• $18.00

Target Price $16.62

That Being Said….

Artis Decision

53

Target Price $16.62 (HOLD)Good Buying Opportunity?

Artis Decision

54

Target Price $16.62 (HOLD)Therefore, analysts should revisit Artis to test discount to NAV and stability of bond yields

@ Purchase Price of $14.50 (July 31st), Discount to NAV: 9.94%

Artis July 2013 Price Range: $14.48 ‐ $15.33/Unit

Artis NAV July 2013: $16.10/Unit

CamecoInitiating Coverage

July 31, 2013

Andrew Xue, Portfolio ManagerBojan Joncevski, Analyst

Courtland Livesley-James, Analyst

Materials Sector

Performance Highlights

56

Valuation Metrics 1 Year Performance vs. Sector Index

60

70

80

90

100

110

120

130

Cameco MSCI Canada Materials

Share Price ($) $ 21.89Market Cap ($ mm) 8,656.13

Net Debt ($mm) 780P/EPS 2012 32.67P/EPS 2013E 23.1P/B Current 1.74EV/EBITDA 2012 13.26Debt/EBITDA LTM 2.03

EBITDA/Interest LTM 9.98

ROE 2012 5.36Dividend Yield (%) 1.8

Company Overview

57

Company Description

Recent Developments Revenue Breakdown (2013 estimate)

• One of the largest uranium producers (14% of global production)• 465 million pounds of reserves in USA, Canada, Kazakhstan• Vertically integrated

• Saskatchewan Royalty Incentives• Canada-India Nuclear Deal• Japan closer to nuclear restart

• Mining ($1,015 mm)• Electricity ($479 mm)• Fuel Services ($282 mm)

Investment Valuation

58

Investment Drivers Sensitivity Analysis• Low-cost Production vs.

Competitors• Synergies from Acquisition• Political Changes

WACC 26.30 14.75% 13.75% 12.75% 11.75% 10.75%

Ura

nium

Pric

e 85 33.51 34.68 35.94 37.29 38.76 75 29.04 30.05 31.12 32.28 33.54 65 24.57 25.41 26.30 27.27 28.31 55 20.10 20.77 21.49 22.26 23.09 45 15.63 16.13 16.67 17.25 17.87

Valuation

• Calculated target price: $26.30

• NAV – mining segment• DCF – fuel & electrcity

segments

Investment Outlook

59

Risks and Sector Outlook

Investment Outlook

• Regulatory risks: Kazakh government adversely impacts operations in Kazakhstan • Operational Risks: Development projects/projects under evaluation do not proceed • Environmental Risks: Environmental regulations

• Recommendation: Buy• Current price: $21.89• Analyst avg. target price (19 estimates): 26.37• Average dividend yield: 1.8%• Our target price: 26.32• Total Upside: 20%

Valeant PharmaceuticalInitiating Coverage

July 31, 2013William Ye, Healthcare Analyst

Healthcare Sector


61


70

90

110

130

150

170

190

210

Valeant MSCI Canada Healthcare

Share Price ($) $ 93.88Market Cap ($ mm) 30,730Net Debt ($mm) 10,507P/EPS 2012 107.64P/EPS 2013E 15.57EV/EBITDA 2012 22.99Debt/EBITDA LTM 6.15EBITDA/Interest LTM 3.72ROE 2012 (3.03)

Company Overview

62

Multinational specialty pharmaceutical company Develops, manufactures, and markets pharmaceutical, over-the-

counter products, and medical devices Two segments: developed and emerging markets

Valeant Business Description

Strategy

Acquisitions Operates in niche markets Focuses on markets with high growth

potential and margins Avoids Primary Care

Recent News

$8.7 billion acquisition of Bausch and Lomb

$2.6 billion acquisition of Medicis Q2 earnings to be released on

August 7, 2013

Risks

63

Patents and Product Exclusivity

Important to ensure competitiveness Some signs of erosion in Canada and U.S. Neurology Combat through growth/acquisitions

Acquisition Risk

Inability to manage growth and integration Steps taken to mitigate: Careful inspection of operation synergy Retention of key personnel Careful evaluation of market in which acquired company

operates

Valuation

64

$103.22= 9.34% Return

Public Comparables

(10%)$77.63

Transaction Comparables

(10%)$84.99

Discounted Cash Flow (40%)$106.78

Other Analysts’ Projections (40%)

$110.63

Avigilon CorporationInitiating Coverage

July 31, 2013

Linda Teng, Portfolio ManagerMarco Chan, Analyst

Information Technology Sector


66


Share Price ($) $17.62 Market Cap ($mm) $689.89 P / EPS 2012 94.98

45.01 9.05

P / EPS 2013EP / B CurrentEV/ EBITDA 2012 56.34 Debt/EBITDA NMEBITDA/Interest NM ROE 2012 13.56 Dividend Yield (%) NM

70

120

170

220

270

320

Avigilon Corp. XIT:TSX Technology IndexSource: CapIQ on 2013/07/25

Company Overview

67

Company Description

Recent Developments Revenue Breakdown

• Designs, manufactures network-based video surveillance systems and equipment • Image capture, storage, transfer and playback of high quality video surveillance

footage with virtually lossless compression• IPO in November 2011• Q1/13 EPS: $0.07 ($0.02 in Q1/12), Revenue: $32MM, Gross Margin: 51%

• Acquired RedCloud Security Inc. for $17MM cash to expand knowledge of security solutions

• Manufacturing space increased by 150% to support growth

• Coverage initiated at RBC Capital• Q2/13 earnings call on 2013/08/08

9%

51%

7%

24%

5%4% Canada

United States

United Kingdom

Europe, The MiddleEast and AfricaAsia-Pacific

Latin America


68

Investment Drivers Football Field Valuation (July 25, 2013)

• Intellectual Property highest quality and

lowest bandwidth video capture without

visible light• End-to-end Systems

Seamless integration of Video Management Software and Cameras

• Focus on Growth Rapid expansion

overseas into new markets

$0 $5 $10 $15 $20 $25

52 - Week Range

Analysts' Consensus

DCF Analysis2.4x-3x terminal

multiple, 5.27%-8.27% discount rate

Investment Outlook

69

Risks and Sector Outlook

Fund Portfolio Data Investment Outlook

• Competition – Smaller market cap. than competitors. Less access to financial, technical, sales and marketing resources

• Regulatory & Legal – Intellectual Property vital to sustain competitive advantage• Interoperability standards – Standardization of video mgmt software and cameras • Possible dilution to raise additional capital through financing • Rapid growing industry with revenue to double from 2011 to 2016

Recommendation Buy SAF SIF Target Price $19.57 Analyst Target Price $19.00 Investment Thesis: Expanding IndustryFocus on growth, Intellectual propertyRisks: Competitors, Regulatory & Legal, Interoperability Standards

Current Price ($) $17.62 Shares Owned 298.00 Market Value $5,250.76 Initial Purchase Date 13-07-26Avg Price Purchased $18.07 % Until Target Price 11.1%Return - Inception -2.5%Return - TTM 174.5%Return - YTD 50.6%

Baytex Energy Corp.Initiating Coverage

July 10th, 2013Jing Xu, Chief Strategy OfficerKrishna Murali, Energy Analyst

Harsh Shah, Energy Analyst

Energy Sector

Company Overview

71

Company Description

Recent Developments Revenue Breakdown

• Engaged in the acquisition, development and production of crude oil and natural gas

• Operates in the Western Canadian Sedimentary Basin and in the Williston Basin in the United States

• Approximately 87% of production is weighted towards crude oil and 75% in heavy oil

• 8% production growth and 12% 2P growth YoY

• Peace River Area surpassing production expectation in Q1 2013

• 46 additional undeveloped sections in the Peace River Area

Heavy Oil

Light Oil

NaturalGas


72


85

90

95

100

105

110

115

120

125

Baytex MSCI Canada Energy

Share Price ($) $ 42.76 Market Cap ($mm) $ 5,284.81 P / EPS 2012 39.11 P / EPS 2013E 33.09 P / B Current 4.14 EV/ EBITDA 2012 10.53 Debt/EBITDA 1.00 EBITDA/Interest 13.78 ROE 2012 20.64 Dividend Yield (%) 6.17


73

Investment Drivers Football Field Valuation (As of July 10, 2013)

• Production growths and

increase in reserves

• Oil production efficiency

• Expected tightening of

heavy oil differentials

• Expected reduction in

transportation bottlenecks

• Meaningful dividend with

conservative payout ratio

$- $20.00 $40.00 $60.00 $80.00 $100.00

Analyst's Consensus

52 - Week Range

P / CF

EV / DACF

EV / EBITDA

DCF

Investment Outlook

74

• WTI/WCS prices and heavy oil differentials are key risk factors

Source: Net Energy Inc., Argus Media, PIRA

Investment Outlook

75

Recommendation: Limit Buy

SIF Target Price$50

Analyst Target Price

$49.12

Limit Buy

Shares136

Limit Buy Price$41


GLOBAL MACRO OUTLOOKSAF Investment Fund

Macroeconomic Summary

77

Initial Outlook: Challenge Remains Disappointing growths in emerging market economies Infrastructure bottlenecks and capacity constraints Slower external demand growth Financial stability concerns

Recession in the euro area deeper than expected Low demand Depressed confidence Weak balance sheet

U.S. economy expanding at steady but still weak pace Strong fiscal contraction Slowly improving private demand

Global GDP Growth

78

Canadian Economic Environment

79

Cautious Outlook Continues Stronger than expected Q1 but overnight rate remains at 1% Stronger U.S. private demand transmits to Canada Higher commodity prices & increase in trade volume Upward pressure on rates

Weaker growth in China remains a top concern Slowdown in credit growth and deleveraging Capital outflows and tighter credit conditions

Euro-area crisis is still main source of downside risk Weaker demand Financial market turbulence

Housing market imbalances and household debt

U.S. Housing Indicators

80

Source: IMF

China Slowdown Concerns

81

Source: HSBC

Euro-zone GDP Growth

82

Source: The Economist

Canadian Real Estate Activity

83

Source: CREA


QUESTION PERIODSAF Investment Fund


NEXT STEPSSAF Investment Fund

Improvement Initiatives

86

Talent Retention & Knowledge Transfer

Fund Marketing & Exposure

Project Course AFM 418 for students in investment team

New Investor Policy Statement

87

Category Restriction

Asset Class Canadian and U.S. Equities

Market Capitalization (Canadian) C$300 Million +(U.S) US$300 Million +

Debt Rating S&P greater than B (or equivalent)

Individual Holdings < 10% of Fund assets

Industry Sectors < 25% of Fund assets

Trading Volume < 5% of 10-day daily average

New Investor Policy Statement

88

Asset Class Minimum Maximum

Cash and cash equivalents 0% 15%

Canadian equities and income trust units 55% 100%

U.S. equities 0% 30%

Asset AllocationThe Fund will normally adhere to the following Asset Mix ranges for the Fund’s exposure to the allowable investments:


FINAL QUESTION PERIODSAF Investment Fund


THANK YOU FOR LISTENING


APPENDIX

Talent Retention and Knowledge Transfer

92

Waterloo Way Boot Camp

Day 1• Intro to SAF SIF: Overview of Fund, History, Mandate, Mentors, etc.• Intro to SAF SIF: Overview of Fund, History, Mandate, Mentors, etc.

Day 2• Crash course on Excel, Excel plugins, Bloomberg and Capital IQ. Model supplied.• LEARN training: how to find resources• Crash course on Excel, Excel plugins, Bloomberg and Capital IQ. Model supplied.• LEARN training: how to find resources

Day 3• Crash Course on Company Valuation: WACC, DCF & Comp valuation• Example model supplied to allow them to follow along• Crash Course on Company Valuation: WACC, DCF & Comp valuation• Example model supplied to allow them to follow along

Day 4• Economic Moat presentation to identify companies with sustainable advantage• Economic Moat presentation to identify companies with sustainable advantage

Day 5• Putting the Valuation together: Assumptions, Equity Research Report, and Stock Pitch Presentations

• Putting the Valuation together: Assumptions, Equity Research Report, and Stock Pitch Presentations

Portfolio Breakdown

93

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00%

Auto ComponentsSpecialty Retail

Oil, Gas and Consumable FuelsCommercial Banks

Real Estate Investment Trusts (REITs)Pharmaceuticals

Commercial Services and SuppliesElectronic Equipment, Instruments and Components

ChemicalsMetals and Mining

Electric UtilitiesIndependent Power Producers and Energy Traders

AutoComponents

SpecialtyRetail

Oil, Gas andConsumable

Fuels

CommercialBanks

Real EstateInvestment

Trusts(REITs)

Pharmaceuticals

CommercialServices and

Supplies

ElectronicEquipment,Instruments

andComponents

Chemicals Metals andMining

ElectricUtilities

IndependentPower

Producersand Energy

TradersPortfolio 4.21% 5.48% 13.60% 18.70% 5.80% 5.55% 6.53% 5.44% 5.04% 9.59% 9.48% 10.59%Index 1.24% 0.12% 24.43% 19.22% 2.33% 1.90% 0.40% 0.12% 2.60% 8.51% 0.64% 0.53%

Sub-Sector Allocation Portfolio v.s. Index

Materials

Information Technology

IndustrialsHealthcare

Financials

EnergyConsumer Discretionary

Utilities

Portfolio Breakdown (Continued)

94

Index PortfolioHotels, Restaurants and Leisure 0.53% 0.00%

Household Durables 0.07% 0.00%

Media 3.11% 0.00%

Multiline Retail 0.72% 0.00%

Textiles, Apparel and Luxury Goods 0.34% 0.00%

Beverages 0.05% 0.00%

Food and Staples Retailing 3.85% 0.00%

Food Products 0.65% 0.00%

Energy Equipment and Services 1.19% 0.00%

Capital Markets 1.36% 0.00%

Diversified Financial Services 0.57% 0.00%

Insurance 8.15% 0.00%Real Estate Management and Development 2.24% 0.00%

Thrifts and Mortgage Finance 0.29% 0.00%

Healthcare Providers and Services 0.81% 0.00%

Index PortfolioAerospace and Defense 0.83% 0.00%

Airlines 0.16% 0.00%

Construction and Engineering 0.47% 0.00%

Machinery 0.09% 0.00%

Professional Services 0.13% 0.00%

Road and Rail 3.97% 0.00%

Trading Companies and Distributors 0.45% 0.00%

Communications Equipment 0.30% 0.00%

IT Services 0.71% 0.00%

Software 0.42% 0.00%

Containers and Packaging 0.15% 0.00%

Paper and Forest Products 0.51% 0.00%Diversified Telecommunication Services 3.57% 0.00%

Wireless Telecommunication Services 1.25% 0.00%

Gas Utilities 0.09% 0.00%Multi-Utilities 0.93% 0.00%


95

Meeting Minutes and Investment Scrapbook

Investment Scrapbook contains one-pagers on each of the fund’s investments, key drivers, key risks, price targets, upside potential, stop loss targets, etc. These will allow next term to quickly understand the rational for all investments from prior terms.


96

Allow Fund Executives to Use LEARN to:

Communicate each meeting’s assignments and tips Reorganize the “Content” tab to become more

accessible Institute a process for voting and communication such

as: Discussion forum on how to complete assignments Efficient decision making

Standardize evaluation process leading towards future course credit term

advisory board meeting – spring 2013€¦ · total portfolio value $101,978.05 portfolio holdings...

Documents