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Financial Sector Stock Presentation

VIEWS: 3 PAGES: 20

  • pg 1
									Financials Sector Stock
     Presentation
      -John Reik-
       -Jeff Liu-


                          1
      Sector Recommendations
   Increase SIM portfolio’s financial
    sector weight by 147 basis points to
    bring in line with S&P 500
   Look for opportunities in P&C
    insurance companies, asset
    managers, brokers, investment
    bankers, and exchanges
   Exercise caution with banks, real
    estate, and credit card companies
                                           2
      Stock Recommendations
   Sell Mastercard (MA)
    • [409 basis points]
   Sell Biomed Realty Trust (BMR)
    • [377 basis points]
   Buy Goldman Sachs Group (GS)
    • [433 basis points]
   Buy Reinsurance Group of America (RGA)
    • [500 basis points]
                                             3
Current SIM Holdings vs. Proposed
          SIM Holdings
 Shares               Security              Ticker       Market Price % of assets
  31,000   Biomed Realty Trust Inc.      BMR                     39.83      3.77%
  12,200   Capital One Financial Corp.   COF                       80.4     4.00%
   9,100   Citigroup                     COF                     55.13      2.05%
   9,000   Mastercard Cl-A               MA                     111.55      4.09%
  13,100   Merrill Lynch & Co.           MER                     93.56      5.00%
  12,400   US Bancorp                    USB                     35.60      1.80%



 Shares                  Security               Ticker     Market Price % of assets
  12,200   Capital One Financial Corp.       COF                     80.4     4.00%
   9,100   Citigroup                         COF                   55.13      2.05%
  13,100   Merrill Lynch & Co.               MER                   93.56      5.00%
  12,400   US Bancorp                        USB                   35.60      1.80%
           Goldman Sachs Group Inc.          GS                   216.50      4.33%
           Reinsurance Group of America      RGA                   58.71      5.00%


                                                                                      4
                 Mastercard (MA)
   Business Analysis
    • Risks:
          Increased competition
            • Visa & Discover IPOs
          Legal & Regulatory Issues ($1b or $7/share)
          Slowing revenue, earnings, and operating margin
           growth rates
    • Opportunities:
          Expansion in overseas markets
          New initiatives (e.g. PayPass)
          Increased use of non-cash transactions

                                                             5
                           Mastercard (MA)
       Financial Analysis:
                             MA     Industry   Sector
Valuation Ratios     P/E     24.6     16.75     16.63
                     PEG     1.49     1.07      1.23
                     P/S     4.24     2.34      3.76
Effectiveness Ratios ROA     1.14     2.93      2.99
                     ROE     2.84     22.82     16.25
                     ROI     1.86     6.85      8.87


       MA’s effectiveness ratios are below
        average
         • MA seems to be valued too high on a
           P/E, P/S, and PEG basis
                                                        6
                  Mastercard (MA)
                                    Absolute
   Valuation:                                     HI    LO     ME     CU
    • Current Stock Price:          P/E           25.9   10.9   17.2   24.6
      $104.06                       P/B           6.4    2.8    4.2    6.1

    • DCF Target Price:             Relative to S&P
      $101.07                                      HI    LO     ME     CU
          Potential downside:      P/E           1.63   0.77   1.13   1.52
           2.9%                     P/B           2.16   1.05   1.49   2.03
    • Absolute:
                                    Relative to AXP
          Near all time highs in                  HI    LO     ME     CU
           P/E and P/B
                                    P/E           1.54   0.67   1.00   1.47
    • Relative to S&P 500:          P/B           0.99   0.44   0.64   0.94
          expensive
    • Relative to AXP:
          Expensive (based on
           P/E)


                                                                        7
            Goldman Sachs (GS)
   Business Analysis
    • Investment banking segment: Booming market
      for equity IPOs, M&As, share buybacks, etc.
    • High investor confidence equates to high
      inflows for asset management and brokerage
      services
   Risks:
    • Decrease in business/consumer confidence
          Less investment banking/trading activity
    • Increasing interest rates or widening of credit
      spreads


                                                        8
               Goldman Sachs (GS)
   Financial Analysis
                                 GS      JPM      MER       MS     Industry
    Valuation Ratios     P/E     11      12.63    11.73    11.46     19.23
                         PEG    0.75     1.26     0.97     0.85      1.01
                         P/S    2.39     3.07     2.43     2.56      2.55
    Effectiveness Ratios ROA   1.23%    1.07%      n/a    0.74%       n/a
                         ROE   29.90%   12.24%   20.20%   23.67%    22.60%
                         D/E    10.92     n/a     11.04    17.07      n/a


   GS seems to be outperforming its
    competitors
     • However, the stock is still cheap on a
       P/E, PEG, and P/S basis

                                                                              9
            Goldman Sachs (GS)
                                    Absolute

   Valuation:                      P/E
                                                    HI
                                                   20.9
                                                               LO
                                                               5.9
                                                                             ME
                                                                             10.0
                                                                                       CU
                                                                                       10.7
    • Current Price: $214.00        P/B            3.2         1.7           2.2       3.2

    • DCF Target Price:             Relative to S&P
      $269.12                                       HI         LO            ME        CU
          25.8% potential upside   P/E            0.98        0.38          0.62      0.67

    • Absolute:
                                    P/B            1.05        0.62          0.74      1.05

          P/B ratio near 5-year    Relative to Industry Group (Securities   Brokerages)
           HI                                        HI         LO           ME        CU
          P/E ratio about          P/E             1.15       0.57          0.85      0.86
           average                  P/B             1.48       1.01          1.16      1.47

    • Relative to S&P:
          cheap on a P/E basis
          In-line on a P/B basis
    • Relative to Industry:
          Cheap on a P/E basis
          Expensive on P/B basis
                                                                                        10
      Biomed Realty Trust (BMR)
   Business Analysis
    • Major revenue drivers:
           The mortgage rate, affects both company’s financial cost and customer
            demand.
           Over all economy--GDP (on a lag basis); employment numbers, and the
            well-being of biotechnology and pharmaceutical companies.
           The prices of utility, taxes and insurance are crucial to the companies’
            operating expenses.
    • Potential risks:
           The rate hiked by FED to 5.25% over the past year will take full effect on
            the real estate market in 2007.
           The severe correction of the current over-valued real estate industry as a
            whole
           Tenants in the life science industry face high levels of regulation, expense
            and uncertainty
           specific improvements required for our life science tenants
           The geographic concentration of our properties in Boston and California
           limited operating history as a REIT and as a public company




                                                                                           11
       Biomed Realty Trust (BMR)
   Financial Analysis:
                                          BMR    Industry   Sector   S&P 500
    Profitability Ratios (%)
    Operating Margin (ttm)                32.2    25.7       13.9     19.9
    Operating Margin (5yrs)               46.5     27        12.7     19.4
    Net Margin (ttm)                       14     19.7        8.8     13.5
    Net Margin (5yrs)                      20     21.7        7.5     12.2
    Efficiency Ratios (TTM)
    Asset Turnover                         0.1    0.2         1.1      1
    Receivables Turnover                  38.6    15.7       17.7     10.7
    Management Effectiveness Ratios (%)
    Return on Investment (ttm)            1.7      3.9       9.1      12.1
    Return on Investment (5yrs)           NA       3.7       7.3      10.3
    Return on Equity (ttm)                2.8      8.1       15        20
    Return on Equity (5yrs)               10       8.3       13       18.4




                                                                               12
     Biomed Realty Trust (BMR)
                                    Absolute
   Valuation:                      P/E
                                                    HI
                                                   51.4
                                                               LO
                                                               14.2
                                                                       ME
                                                                       17.2
                                                                              CU
                                                                              16.1
    • Current Price: $29.70         P/B            2.1         1.1     1.6    1.6
    • DCF Target Price:
                                    Relative to S&P
      $31.08                                        HI         LO      ME     CU
          Potential upside 4.6%    P/E            3.02        0.94    1.17   1.01
    • Absolute:                     P/B            0.70        0.38    0.58   0.52

          About average in P/E     Relative to Financials Sector
           and P/B                                   HI         LO     ME     CU
    • Relative to S&P:              P/E             3.87        1.16   1.50   1.31
          About average in P/E     P/B             0.99        0.57   0.81   0.73
           and P/B
    • Relative to Sector:
          A little below average
           in P/E and P/B

                                                                              13
Biomed Realty Trust (BMR)




                            14
     Reinsurance Group of America
                (RGA)
   Business Analysis
    • Major revenue drivers:
           The increasing life and retirement product need for baby boomers.
           The Company has arms-length direct policies and reinsurance
            agreements with MetLife and certain of its subsidiaries.
            Consolidation and Reorganization: the coinsurance agreement with
            Allianz Life provided $278.0 billion in reinsurance in force
           Growing market potential in Asia. (Percentage of company revenue
            8.1% (02),9.8% (03),11.9% (04). 13% (05)
    • Potential risks:
           Adverse changes in mortality, morbidity or claims experience
           Inflation & Interest Rate Risk
           General economic conditions affecting the demand for insurance
            and reinsurance
           Exchange rates fluctuations
           Changes in laws, regulations, and accounting standards applicable
           Risks inherent in risk management and investment strategy



                                                                            15
     Reinsurance Group of America
                (RGA)
   Financial Analysis:
                                          RGA     Industry   Sector   S&P 500
    Profitability Ratios (%)
    Operating Margin (ttm)                 8.7     13.3       31.1     19.9
    Operating Margin (5yrs)                8.5     9.7        34.3     19.4
    Net Margin (ttm)                       5.6     9.5        18.4     13.5
    Net Margin (5yrs)                      5.6      7         18.1     12.2
    Efficiency Ratios (TTM)
    Asset Turnover                         n/a      n/a       n/a       1
    Receivables Turnover                  13.9                         10.7
    Management Effectiveness Ratios (%)
    Return on Equity (ttm)                11.06     8.1       16.2      20
    Return on Equity (5yrs)               11.1       9        15.2     18.4
    Return on Capital (ttm)                8.2       8         6.2      9.8
    Return on Capital (5yrs)               8.2      7.5        5.1      7.9




                                                                                16
     Reinsurance Group of America
                (RGA)
                                    Absolute
   Valuation                                       HI         LO         ME        CU
    • Current Price: $58.87         P/E            14.7        7.7        10.5      11.4
                                    P/B            1.6         1.0        1.2       1.3
    • DCF Target Price:
      $77.82                        Relative to S&P
          Potential upside 32.2%                   HI        LO          ME        CU
                                    P/E            0.87       0.44        0.65      0.71
    • Absolute:                     P/B            0.48       0.34        0.42      0.45
          About average in P/E
           and P/B                  Relative to Industry Group (Life&Health Ins.)
                                                     HI         LO        ME        CU
    • Relative to S&P:              P/E             1.26       0.67       0.86      0.71
          A little above average   P/B             1.49       0.78       1.23      0.83
           in P/E and P/B
    • Relative to Industry:
          Below average in P/E
           and P/B

                                                                                    17
Reinsurance Group of America
           (RGA)




                               18
Technical Analysis




                     19
    Review of Recommendations
   Increase SIM
    portfolio’s exposure to
    financial sector by 147
    basis points
   Sell Mastercard (MA)
    [409bps] and Biomed
    Realty Trust (BMR)
    [377bps]
   Buy Goldman Sachs
    (GS) [433bps] and
    Reinsurance Group of
    America (RGA)
    [500bps]
                                20

								
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