SAHM ADRANGI, PORTFOLIO MANAGER, KERRISDALE CAPITAL MANAGEMENT JONES LANG LASALLE (NYSE: JLL): Industry leader in real estate advisory services. Asset-lite, service-based business model (roughly 40% of revenue is recurring). Prestigious brand name with global footprint can attract and retain talent. Leading competitive position in an oligopoly industry (#1 market share in Europe and Asia). One of only two brokerages (C.B. Richard Ellis) with global scale and full product suite. Financial crisis has allowed JLL to consolidate weaker, regional brokerages. Ability to reinvest cash flows at attractive ROIs. Roll-up of boutiques provides for continued compounding (generally preferably to buybacks; pays 7 8x EBITDA for its deals, translating into immediate value creation ). Global commercial real estate transaction volume remains 35% below pre-recession levels. JLLs 14.5x 2014 P/E multiple appears too cheap given its competitive position and projected earnings growth of 15%+ based on European real estate recovery, a strengthening U.S. economy, and emerging market growth. Even after deducting revenue contributed from acquisitions, JLL has grown at a 12% CAGR over the past seven years. Margin expansion opportunity as JLLs EBITDA margin is ~300bps below CBRE and newly installed, GE-trained CFO may drive cost efficiencies. Advisory-focused investment banks (Lazard, Evercore, Greenhill) are a decent comparable and they trade at 22x 2014E P/E versus JLL at 15-16x. At a 22x 2014 P/E multiple, which, is warranted given JLLs growth prospects, competitive position in a oligopoly market, and exposure to the emerging markets, JLL would be worth $155 per share, or a 50% increase from the recent share price. Adrangi's discounted cash flow model yields a $150 per share fair value. http://www.valueconferences.com/2014/01/ideas14-sahm-adrangi/
ROBERT DEATON, MANAGING PARTNER, FAT PITCH CAPITAL H&R BLOCK (NYSE: HRB): World's largest tax preparer with 12,000 offices and 80,000 tax professionals (25+ million tax returns filed in 2013). Durable competitive advantage: industry leading client retention and 98% brand awareness (similar to Coca-Cola, McDonalds and Walmart). Fortress balance sheet with no net debt and a "foolish flow ratio" of 26% ((current assets - cash)/current liabilities). High returns on invested capital (trailing ROA and ROE: 12% and 52%) with low capital intensity (capex as % of revenue: 4%). Shareholder oriented management team after William Cobb became CEO in May 2011: FY 2013 dividends: $217 million; share repurchases: $315 million. 7% free cash flow yield on a net cash balance sheet provides a margin for safety. Huge capital reallocation opportunity: assuming HRB levers up to 2.1x EBITDA to repurchase shares, by FY 2017 this would imply an intrinsic value of $60+ (using a 5% FCF yield), or more than a doubling in the share price from today. Other potential catalysts and opportunities: 1) Sell bank; 2) Affordable Care Act expands market by ~24 million; 3) Online returns growing faster than leading competitors; 4) Tax plus: Continued growth of Emerald Debit Card http://www.valueconferences.com/2014/01/ideas14-robert-deaton/
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JEFF AUXIER, CHIEF EXECUTIVE OFFICER, AUXIER ASSET MANAGEMENT LABCORP (NYSE: LH): ~15% share price decline since mid-November provides an opportunity to buy a compounder in the attractive clinical lab industry and benefit from a shareholder-friendly management team. Recent concerns about declining volumes and pressures on reimbursement rates are likely temporary as doctor visits have been delayed due to a slow recovery out of the recession and uncertainty over health care legislation. But, in time, this will change as patients cannot delay critical health testing forever (similar to Zimmer's experience over the past few years in knee and hip replacements). Bigger picture: long runway for demand growth as 10,000 people a day are turning 65 and that age group has historically been the biggest user of lab tests. Also, recent negative Supreme Court ruling related to competitor Myriad Genetics may provide opportunities for increased volumes for certain products. LabCorp has historically invested well in technology and relationships with doctors and through its increasing scale has become the low-cost provider in an effective duopoly with Quest. Potential for value-enhancing acquisitions as temporary pressures on volumes and reimbursement rates disproportionately hurt smaller-scale providers. Generating $600+ million of FCF, which implies a high single digit free cash flow yield. CEO David King has been a disciplined capital allocator (50% of cash flow has historically gone into buybacks, rest into acquisitions). Since 2002 shares are down from 147 million to 86 million. http://www.valueconferences.com/2014/01/ideas14-jeff-auxier/
CHRIS CRAWFORD, CHIEF INVESTMENT OFFICER, CRAWFORD FUND MANAGEMENT MYRIAD GENETICS (NASDAQ: MYGN): Stock out of favor (~30% decline since November-end 2013) and heavily shorted due to heightened uncertainty resulting from a Supreme Court ruling (probable end of BRAC breast cancer test monopoly), leading to new competition and reimbursement cut threats. But, synthetic genes created by Myriad remain protected and the company has other sources of moat: beyond the tests, MYGN has built proprietary database of gene variants with superior error performance to the public database; reputation built over years with prescribing physicians dealing with critical diseases on a daily basisneed accuracy, comparability, fast turnaround timesvery hard to do thisrequires much more than a lab; largest portfolio of IP resulting from focused accumulation of R&D investment conducted in licensed labs; Myriad is a step ahead of competition with recent launches and pipeline; maturation of basic BRAC segment is expectedlower prices and competition may accelerate adoptiontrade margin for growth (Myriad is exposed to high growth segments in early innings of adoption globally). In addition, reimbursement cut headlines sound draconian, but in reality are likely to be slower and more moderate than expected. As a result, market fears are overblown and high skepticism (45% shorted) creates squeeze conditions if company continues to execute. Strong FCF generator. High and rising ROIC (adding to intrinsic value rapidly). No debt and 516 million of cash ($6.22/share) for buybacks and reinvestment. Crawford estimates intrinsic value at $34 per share in a pessimistic scenario and $52 optimistically. http://www.valueconferences.com/2014/01/ideas14-chris-crawford/
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DAVID ROLFE, CHIEF INVESTMENT OFFICER, WEDGEWOOD PARTNERS EMC (NYSE: EMC): EMC stub valued at just 4-5x earnings, adjusting for VMware stake at market value (~$30 billion) and net cash (~$8.5 billion), which account for about 75% of EMCs recent market capitalization. EMC's forward P/E, on a non-adjusted basis, is still only 11.5x. This is too low given EMC's entrenched ecosystem (services represent ~45% of revenue), sticky customers and unparalleled distribution (direct sales force). Companys strategy of both R&D and scalable acquisitions drives competitive product/service offerings. At the recent valuation, the bear case (current decelerated growth is secular, not cyclical; flash storage and software-defined storage will cannibalize traditional hard disk drives; public cloud is only a threat and not an opportunity; VMwares entrenched vSphere gets displaced by Open-Source and Microsofts Hyper-V; and recent premium- priced acquisitions of Data Domain and Isilon are evidence of lack of internal product development) has to be so overwhelmingly right as to render EMC a broken growth company. - which Rolfe does not see materializing. Therefore, the new $6 billion stock buyback should be quite accretive at current valuation. Rolfe see downside of about 10% to $22 and fair value of $32-35, or 30%+ upside. http://www.valueconferences.com/2014/01/ideas14-david-rolfe/
JAKE ROSSER, MANAGING PARTNER, COHO CAPITAL MANAGEMENT UCP (NYSE: UCP): One of the cheapest ways to participate in the recovery of the U.S. housing market. Asymmetric return potential with low downside risk and significant upside. Simple NAV story, a dollar trading for $0.50 based upon undeveloped land. UCP is a hybrid land developer and home builder focused on high-growth western markets with three quarters of operations based in California and a growing presence in Washington. Increased push into home building promises to unlock significant value (80%+ of lots acquired between 2008-2011 at distressed prices). Broken IPO has led to an "orphaned" stock. Markings of a Wilbur Ross distressed industry roll-up. Over $190 million deployed to take advantage of dislocation in housing market (parent PICO capitalized UCP in 2008 to take advantage of fire-sale prices during the worst of the housing crisis). Ample land supply provides visibility into future development potential (guidance for revenue growth of 100% in 2014). P/B of 1.2x compared to industry average of 2.2x (return of 83% with industry multiple). Direct comp of TPH has a P/B value of 1.9x indicating a potential return of 58%. Trades below liquidation value as it has $171 million in real estate assets (carried at historical cost; GAAP accounting requires land be carried at lower of historical cost or fair value), along with $58 million in net cash. According to Case-Schiller, in UCPs core markets of San Francisco and Seattle, housing prices have risen 53% and 25% respectively from trough levels (roughly when UCP purchased its lots). Buyout candidate (homebuilders are land constrained and UCP provides exposure to high growth west coast markets), but 58% ownership by PICO Holdings could make an acquisition or activist campaign more difficult. However, valuation is its own catalyst - trades below liquidation value - and ramp in homebuilding operations should spur book value growth. http://www.valueconferences.com/2014/01/ideas14-jake-rosser/
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PAUL LOUNTZIS, PRESIDENT, LOUNTZIS ASSET MANAGEMENT PEPSICO (NYSE: PEP): Potential separation of snacks and beverages businesses to create value (50%+ upside from recent share price). While investors still think of Pepsico as a beverages business, the majority of value is in the snacks business, which has better growth prospects than beverages. While management's willingness to effect a spinoff and an eventual timeframe are difficult to predict, Lountzis believes Yum! Brands, which was spun-off by Pepsico in 1997, represents a precedent for spin-off success at the company. Another issue favoring a spin-off is that Frito's volume weakness in recent years is likely linked to the weakness in the Americas beverages business. Lountzis agrees with shareholder Trian that the status quo is not a viable long-term option. However, Lountzis prefers the option of a simple separation of snacks and beverages to the more complex alternative (also proposed by Trian) of merging Pepsico and Mondelez, followed by a snacks/beverages separation. Separately, Lountzis also likes the following two preferred stock ideas for income-oriented investors: USB SERIES F (FRAP), WFC SERIES R (FRAP) http://www.valueconferences.com/2014/01/ideas14-paul-lountzis/
CHRIS SWASBROOK, PORTFOLIO MANAGER, ELEVATION CAPITAL MANAGEMENT POST HOLDINGS (NYSE: POST): Third-largest cereals business in the U.S. (market share: 10%) after Kellogg (34%) and General Mills (33%) undergoing a significant, yet still underappreciated transformation under hall of fame capital allocator and CEO Bill Stiritz of Ralston Purina fame. A dollar invested with Bill Stiritz when he became CEO of Ralston Purina was worth $57 nineteen years later. He is now at it again with POST Holdings, transforming the business from a low growth single category participant to a consumer products holding company, operating in center-of-the-store, active nutrition and private label categories (from 2013 Annual). As a result, historical financials dont tell the full story. Future strategy likely to entail continued roll-up following Stiritz's Ralcorp public LBO model: leverage up to achieve higher returns on equity, prune less profitable businesses, expand into related businesses that have higher returns and growth, buy back shares opportunistically. Potential exit strategies: 1) acquisition target for one of its main competitors in the cereals market; 2) acquisition target for other major players in the packaged food industry; 3) sale to private equity. Precedent transactions indicate an EV/EBITDA multiple paid by acquirors of 13x. Assuming a similar multiple applied to Swasbrook's FY2014 estimated EBITDA range (including announced acquisitions), POST is worth $63-71 per share, implying 27-44% upside. http://www.valueconferences.com/2014/01/ideas14-chris-swasbrook/
ERIC DELAMARTER, MANAGING MEMBER, HALF MOON CAPITAL MURPHY USA (NYSE: MUSA): Regional owner and operator of small-format retail gas stations. Spun-off from $12B market cap Murphy Oil, an exploration and production company and S&P 500 constituent, in August 2013. Rationale: focus business and unlock value. 1,200 locations in the Southeast and Midwest, 85% adjacent to Walmart. Mr. Market erroneously focused on low margins and consolidated financials (which include volatile, non-core segments that have been sold or are being sold). The reality is a cash-generative core business with an attractive return profile (ROIC: 2x
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peers) due to structural advantages (owns midstream assets; shipper status on pipelines; relationship with Walmart; small format). This gives the company competitive fuel gross margins while also being a low-cost provider and making the business less sensitive to oil price swings. Recent insider buying. Likely year-end portfolio clean-up selling pressure (spin-off). Trading at discount to peers and absolute sum-of-the-parts value: 7.1x LTM EBITDA-capex (normalized), 7.0x base case CY2014E EBITDA-capex. Growth opportunity: plans to open 60 stores per year with 200 openings over the next three years and 400-500 more through 2020 within Walmart network. Equity offers 50%+ near-term upside. Downside protection: Retail segment real estate worth more than current enterprise value. Strong balance sheet. Catalysts: 1) sale of non-core ethanol plants; 2) increased appreciation of the quality of the business and its near-term growth prospects; 3) margin expansion from higher mix of larger floor plan stores; 4) announcement of dividend or restructuring (conversion to REIT or MLP). http://www.valueconferences.com/2014/01/ideas14-eric-delamarter/
CHRIS KARLIN, CHIEF INVESTMENT OFFICER, AQUITANIA CAPITAL MANAGEMENT CHIMERA INVESTMENT (NYSE: CIM): Mortgage REIT formed in 2007 and managed by FIDAC, a subsidiary of Annaly Capital Management. Owns non-agency residential mortgage backed securities. Why this company might be mispriced: 1) financial statements are not current due to accounting restatement; 2) potential NYSE delisting resulting from non-current financials; 3) limited communications with investors; 4) GAAP accounting treatment deviates from cash economics; 5) priced below $5 per share; and 6) trades with agency mortgage REIT peer group although facing different set of risks and opportunities. Karlin views Chimera as effectively a closed-end bond fund selling at a deep discount to NAV. Closed-end because of delinquent filer status (which should disappear in 2014) that prevents the company from issuing equity, a traditional way of raising capital for REITs. Selling at discount due to a valuation of 1.1 book, which is understated due to the fact that portfolio was primarily created in 2009-11 at steep discounts and using draconian loss assumptions ($2 billion in accreted discounts were recorded at purchase!). As a result, Chimera offers a highly- levered upside to an improving housing market without significant downside exposure and ability to collect 10%+ dividend yield. Downside is protected due to the deep discount to economic value of the net assets; modest leverage at 0.5x debt to equity for recourse debt and the fact that management is restrained from engaging in value-destructive behavior. Catalysts: 1) resolution of delinquent filing status; 2) cash flow on maturing securitization deals should increasingly flow to CIM-held paper; 3) large interest-only portfolio has negative duration; 4) possible takeout by Annaly (see CreXus). Book value plus dividends grew an estimated 6% in 2013, 21% in 2012, 3% in 2011 and 11% in 2010. http://www.valueconferences.com/2014/01/ideas14-christopher-karlin/
CHRISTIAN OLESEN, INVESTMENT MANAGER, OLESEN VALUE FUND CRESTON (UK: CRE): Small-cap U.K.-based marketing services holding company trading at 8x trailing earnings. Attractive business with very low capital requirements and mostly variable costs (labor) leads to stable and high free cash flow. Creston trades at the lowest earnings multiple (despite recently depressed margins) and has the lowest leverage among its peers. Corporate expenses are about 25% of adjusted EBITA because Creston is small for a publicly traded holding company. Acquisition by competitor and 6% shareholder Havas (or another buyer) is a possibility, but may be a
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long ways off. In the meantime, investors collect a 4% dividend yield on a debt-free balance sheet. Earnings growth and multiple expansion are likely due to improving business sentiment in the U.K., possible higher utilization of balance sheet, and moving past prior issues (ICM, Sanofi). If, as Olesen believes, Creston is 30% undervalued (at a low teens fair value earnings multiple), and value increases 10% per year, a 20% IRR is possible if the stock is fairly valued in three years. http://www.valueconferences.com/2014/01/ideas14-christian-olesen/
RANDALL ABRAMSON, PORTFOLIO MANAGER, TRAPEZE ASSET MANAGEMENT MANITOK ENERGY (Canada: MEI): Western Canada oil and gas company trading at $2.15 per share compared to Abramson's estimated value of $4.50 and growing. Short term noise has created an opportunity as the recent flow-through financing created an overhang on the stock and the company revised downward 2013 guidance (due to disappointing third quarter results) related to timing issues and production mix. In addition, the Entice acquisition created uncertainty about the future direction and the COO left the company. However, management are astute buyers of the stock and there has been insider buying recently. Currently trading at an enterprise value of $35,000 per boe/d, 4.5x Q3 annualized cash flow and 2.3x 2014 cash flow guidance. It is also trading at a discount to its 2012 reported reserve-based NAV per share of $2.84. Value added through 2013 and the addition of Entice should raise the current NAV to about $3.50. Abramson's private market value estimate is $5.75 per share in a takeout scenario based on an EV per boe/d of $85,000. http://www.valueconferences.com/2014/01/ideas14-randall-abramson/
JOSH YOUNG, PORTFOLIO MANAGER, YOUNG CAPITAL MANAGEMENT AUSTEX OIL (Australia: AOK): Small-cap oil and gas exploration and production company trading for ~1/4 of its $250 million proved reserve value. Most capital efficient, growing public companies trade at a premium to their proved reserve value. Austex trades primarily in Australia despite U.S. assets (focused on vertical development of a proven, highly economic Mississippi Lime field in Kay County, Oklahoma). Australian Stock market has underperformed and Austex has been overlooked despite substantial reserve and production growth in the midst of Australian market turmoil. Austex stock has substantially lagged its high-growth, oil producing peers despite better drilling economics and rapid growth. Recent, material outside confirmations of valuation, including a sophisticated private equity investor - Michael Stone, former CEO of JH Whitney, who took Herbalife private in 2002 and public in 2004 - buying a 30% stake and getting incremental reserve engineering report confirming value. Aligned Board with three out of seven seats held as designees for Stone's investment vehicle. This is a recent development, and is a significant step up in corporate governance. With the stock trading at a steep discount to proved reserve value and 2x exit 2014 EBITDA, this is not yet priced in the stock. http://www.valueconferences.com/2014/01/ideas14-joshua-young/
Also, do not miss the exclusive session on the use of investment checklists in idea generation and evaluation with thought leaders Mohnish Pabrai, Guy Spier and Michael Shearn. Access the replay at http://www.valueconferences.com/2014/01/ideas14-pabrai-spier-shearn/ BEST IDEAS 2014: January 7-8, 2014* Ideas sorted by company (as compiled by the ValueConferences team) Price at Close Instructor Company Ticker 6-Jan-14 Link to Session Recording Josh Young Austex Oil Australia: AOK AUD 0.15 http://www.valueconferences.com/2014/01/ideas14-joshua-young/ Jean-Pascal Rolandez Bourbon France: GBB 20.08 http://www.valueconferences.com/2014/01/ideas14-jean-pascal-rolandez/ Chris Karlin Chimera Investment NYSE: CIM $3.04 http://www.valueconferences.com/2014/01/ideas14-christopher-karlin/ Christian Olesen Creston UK: CRE 0.95 http://www.valueconferences.com/2014/01/ideas14-christian-olesen/ David Rolfe EMC NYSE: EMC $24.86 http://www.valueconferences.com/2014/01/ideas14-david-rolfe/ Robert Deaton H&R Block NYSE: HRB $28.48 http://www.valueconferences.com/2014/01/ideas14-robert-deaton/ Sahm Adrangi Jones Lang LaSalle NYSE: JLL $102.79 http://www.valueconferences.com/2014/01/ideas14-sahm-adrangi/ Jeff Auxier LabCorp NYSE: LH $90.35 http://www.valueconferences.com/2014/01/ideas14-jeff-auxier/ Randall Abramson Manitok Energy Canada: MEI CAD 2.12 http://www.valueconferences.com/2014/01/ideas14-randall-abramson/ Eric DeLamarter Murphy USA NYSE: MUSA $41.78 http://www.valueconferences.com/2014/01/ideas14-eric-delamarter/ Chris Crawford Myriad Genetics Nasdaq: MYGN $21.03 http://www.valueconferences.com/2014/01/ideas14-chris-crawford/ Paul Lountzis Pepsico NYSE: PEP $82.28 http://www.valueconferences.com/2014/01/ideas14-paul-lountzis/ Chris Swasbrook Post Holdings NYSE: POST $49.50 http://www.valueconferences.com/2014/01/ideas14-chris-swasbrook/ Jake Rosser UCP NYSE: UCP $14.50 http://www.valueconferences.com/2014/01/ideas14-jake-rosser/ The Manual of Ideas - Top Ideas from Best Ideas 2014 Issue: Best Ideas 2014 Issue (click on link below, then look in right sidebar) The Manual of Ideas Harvest Natural NYSE: HNR $4.54 http://www.valueconferences.com/events/ideas14/ The Manual of Ideas Strayer Education Nasdaq: STRA $35.18 http://www.valueconferences.com/events/ideas14/ The Manual of Ideas Weight Watchers NYSE: WTW $31.89 http://www.valueconferences.com/events/ideas14/ * Disclaimer: The content presented here is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth here. BeyondProxys officers, directors, employees, principals and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein. This summary is meant in no way to limit or otherwise circumscribe the full scope and effect of the complete Terms of Use available at: http://www.beyondproxy.com/terms/ CONFIDENTIAL INVESTOR PRESENTATION Manual of Ideas: Best Ideas 2014 January 2014
Kerrisdale Capital Management, LLC 1212 Avenue of the Americas, 3rd Floor New York, NY 10036 Tel: 212.792.7999 Fax: 212.531.6153 Email: info@kerrisdalecap.com
Page 1 / Confidential Jones Lang LaSalle (NYSE:JLL) Industry leader in real estate advisory services Transaction-based: Leasing, capital markets, and property development Recurring: Property management, advisory (valuation/consulting), and investment management Operations in 1,000 locations spanning 70 countries Leading competitive position in Asia and Europe Source: August 2013 Investor Presentation
Page 2 / Confidential Asset-lite, service-based business model Roughly 40% of revenue is recurring Prestigious brand name with global footprint can attract and retain talent Leading competitive position in an oligopoly industry One of only two brokerages (C.B. Richard Ellis) with global scale and full product suite Financial crisis has allowed JLL to consolidate weaker, regional brokerages Global commercial real estate transaction volume remains 35% below pre-recession levels $500m expected in 2013 versus $758m in 2007 Industry cap rates have largely priced in future interest rates increases 14.5x 2014 P/E, mid-single digit FCF yields, and projected earnings growth of 15%+ JLL will benefit from a recovery in EMEA transaction volume, a falling U.S. unemployment rate, and long-term exposure to emerging market growth Margin Expansion Opportunity JLLs EBITDA margin is ~300bps below its closest competitor, CBRE Newly installed, GE-trained CFO may drive cost efficiencies Investment Highlights
Page 3 / Confidential Modest valuation relative to growth expectations JLLs 14.5x 2014 P/E multiple appears too cheap given its competitive position European real estate recovery, a strengthening U.S. economy, and emerging market growth should lead to 15 20% EPS growth for the next few years Capitalization & Multiples Financial Statistics Fiscal Year End Dec 31st 2009 2010 2011 2012 LTM Share Price (US$) $102.63 Americas $1,032.7 $1,261.2 $1,525.3 $1,746.7 $1,850.3 Diluted Shares 45.2 EMEA 646.5 728.8 973.7 1,048.9 1,165.3 Market Cap $4,635.1 % Growth (25.8%) 12.7% 33.6% 7.7% 28.8% Add: Debt 815.6 Asia Pacific 541.2 678.5 816.5 875.6 933.7 Add: Deferred Obligations 130.3 Invest Mgmt 260.2 245.5 275.5 285.4 275.5 Less: Cash (119.7) Corporate 11.4 (6.4) (23.9) (23.9) Enterprise Value $5,461.3 Total Revenue $2,480.3 $2,925.5 $3,584.9 $3,932.8 $4,200.9 % Growth (8.0%) 17.9% 22.5% 9.7% 9.6% Trading Multiples EV / LTM EBITDA $475.8 11.5x EBITDA (1) $238.6 $336.8 $394.9 $436.2 $475.8 EV / 2014E EBITDA 530.6 10.3x Capex (44.2) (47.6) (91.5) (94.8) (95.1) LTM P/E $5.62 18.3x EBITDA - Capex $194.3 $289.1 $303.4 $341.4 $380.7 2014E P/E 7.07 14.5x EPS (2) $1.75 $3.77 $4.83 $5.48 $5.62 2015E P/E 8.08 12.7x ROE 5.7% 11.3% 13.2% 13.5% 13.0% Source: JLL Corporate Filings (1) Excludes non-recurring restructuring and acquisition costs (2) Excludes non-recurring and intangible amortization expense
Page 4 / Confidential Top-Tier brand with leading position in Europe and Asia JLL's Holds Leading Market Share in Europe and Asia 2010 2011 2012 LTM Americas Revenue Jones Lang LaSalle $1,261.2 $1,525.3 $1,746.7 $1,850.3 C.B. Richard Ellis 3,217.5 3,673.7 4,103.6 4,393.1 Europe Revenue Jones Lang LaSalle $728.8 $973.7 $1,048.9 $1,165.3 C.B. Richard Ellis 936.6 1,076.6 1,031.8 1,141.9 Asia Revenue Jones Lang LaSalle $678.5 $816.5 $875.6 $933.7 C.B. Richard Ellis 669.9 788.8 817.2 866.1
#1 market share in Europe and Asia Lipsey's Commercial Real Estate Brand Survey Firm 2013 2012 2011 2010 2009 C.B. Richard Ellis (CBRE) 1 1 1 1 1 Jones Lang LaSalle 2 3 3 3 4 Colliers 2 2 2 2 3 Cushman & Wakefield 3 4 4 2 2 Newmark Grubb Knight Frank 4 5 5 6 5 Cassidy Turley 5 7 8 8 9 Source: Lipsey Commercial Real Estate Training
Page 5 / Confidential Global real estate transaction volume continues to recover Transaction volume remains 35% below pre-recession levels $500m expected in 2013 versus $758m in 2007 JLL expects global transaction volumes to grow by 10% in 2014 Source: JLL Q4 2013 Market Perspectives
Page 7 / Confidential Industry consolidation has favored the largest competitors The 2009 financial crisis led to an industry reshuffling Grubb & Ellis, formerly a Top-5 firm, filed for bankruptcy in February 2012 and merged with Knight Frank in April 2012 Poorly positioned middle-market brokers have lost market share Full product-suite model has cost advantages over boutiques Transitionally-oriented boutiques (HFF, Eastdil Secured, Marcus & Millichap, etc.) generally dont offer property management and leasing services JLL can underbid on transactional fees in order to win recurring property management business and long-term client relationships Along with CBRE, JLL is the only firm with a truly global footprint Real estate is a local business, and global clients demand expertise in various geographies Representatives for multi-million dollar transactions are risk-averse Harder to be fired for hiring a top-tier brand like JLL or CBRE The real estate services business has evolved more and more into two models, the global model where you have mulitiple service lines and very broad geography to service clients around the globeThen you have the niche models. Anything in the middle is hard because either youre competing against a global company with clout and infrastructure or a niche player who does a single job in a single location better than anyone. Cushman & Wakfields CEO (March 2012)
Page 8 / Confidential Ability to reinvest cash flows at attractive ROIs JLL has taken advantage of the crisis by investing in growth 55% of earnings have been reinvested into acquisitions over the past three years Roll-up of boutiques provides for continued compounding (generally preferably to buybacks) Generally pays 7 8x EBITDA for its deals, translating into immediate value creation Acquisitions have translated into robust growth over the past three years 13% revenue and 18% EPS 3-year CAGR expected in 2013
Page 9 / Confidential Long-term Organic Growth CAGR Even after deducting revenue contributed from acquisitions, JLL has grown at a 12% CAGR over the past seven years This compares favorably against 16% total revenue growth JLL's Organic Growth (Illustrative) 2005 2006 2007 2008 2009 2010 2011 2012 Total Revenue $1,390.6 $2,013.6 $2,652.1 $2,697.6 $2,480.7 $2,925.6 $3,584.5 $3,932.8 % Revenue CAGR 16.0% Inorganic Revenue Contribution 2006 - Spauling & Slye ($150m) 97.3 2007 - 13 bolt-on deals 151.0 2008 - 15 Deals incl. Staubach 386.0 2009 - No acquisitions 2010 - No acquisitions 2011 - King Sturge ($350m) 197.0 2012 - 4 deals ($16m) 8.0 Implied Organic Revenue $1,390.6 $1,916.2 $2,403.7 $2,063.2 $1,846.4 $2,291.3 $2,753.2 $3,093.5 % Organic Growth 37.8% 25.4% (14.2%) (10.5%) 24.1% 20.2% 12.4% % Organic CAGR 12.1% Source: Company filings, press releases, CapitalIQ (1) Based on management's estimate of 7% growth contribution for H1 2006 (2) Management indicated that M&A added 5-10% to 2007 growth (3) Deals contributed $193m to 2008 revenue, and we annualized that figure since Staubach closed in July 2008 (4) Undisclosed. We assume that JLL paid 2x revenue (1) (2) (4) (3)
Page 10 / Confidential New CFO may improve JLLs cost structure JLLs consolidated EBITDA margins remain 300 bps below CBRE Christie Kelly, former CFO of Duke Realty and a 20-year veteran of General Electric, joined as JLL as the CFO in May 2013 Margin expansion is one of Ms. Kellys top priorities Begun to exit unprofitable segments (e.g. closure of U.K. branch offices, sale of Swedish asset management business, etc.) Will introduce new internal productivity measures to balance growth versus profitability 6% 8% 10% 12% 14% 16% 18% 2005 2006 2007 2008 2009 2010 2011 2012 LTM C.B. Richards Jones Lang LaSalle Comparative EBITDA Margins 300bps gap Source: Company filings
Page 11 / Confidential Interest rate risks are overblown Average U.S. cap rates are 6.5% - 7.0%, representing a 400bps spread to 10-yr treasuries This wide spread reflects a well-choreographed expectation of higher interest rates Source: HFF Q3 2013 report
Page 12 / Confidential Transaction activity is more dependent on a strengthening economy Indicators such as GDP growth, unemployment rate, and the health of capital markets are more predictive of transaction volumes Leasing, in particular, is highly correlated to the unemployment rate Leasing revenue, representing 32% of JLLs business, has lagged the transactional segments on high E.U. and U.S. unemployment Source: HFF Q2 2013 report
Page 13 / Confidential JLL is under-covered by Wall Street $5bn business covered by a small hand-full of analysts J.P. Morgan and Barclays are the sole bulge bracket analysts Business model mismatch: J.P. Morgans analyst covers the REIT industry The sellside focuses on relative rather than absolute valuation Relative valuation is not applicable when an entire sector becomes cheap Moreover, a direct comparison to CBG fails to capture JLLs exposure to a European recovery, long-term Asian growth, and margin expansion opportunity Source: Bloomberg
Page 14 / Confidential We believe JLL should trade at a premium to the S&P Advisory-focused investment banks are a decent comparable Business posses robust capital efficiency, strong brand names, and minimal principal risk At a 22x 2014 P/E multiple, JLL would be worth $155/share, or a 50% increase from the current share price We believe a 20x 25x P/E is warranted given JLLs growth prospects, competitive position in a oligopoly market, and exposure to the emerging markets A European real estate recovery, a strengthening U.S. leasing market, and growth in Asia should drive consistent EPS growth of 15 20%+
Valuation Capital Efficiency LTM EV / LTM 2014 LTM LTM Mkt Cap EV EBITDA P/E P/E ROA ROE Investment Banks Lazard 5,765 n.a. n.a. 25.1x 18.5x 3.6% 14.5% Evercore 2,175 n.a. n.a. 37.0x 21.4x 7.2% 14.6% Greenhill 1,726 1,737 21.5x 37.3x 25.8x 12.2% 15.3% Average 33.2x 21.9x 7.7% 14.8% Global CRE Brokers Jones Lang LaSalle $4,635 $5,461 11.5x 18.3x 15.5x 6.0% 13.0% C.B. Richard Ellis $8,735 $10,253 10.4x 21.1x 16.1x 6.3% 21.6% Sources: Company filings, CapitalIQ
EMCs Alphabet Soup of Products (A Geeks Wonderland): Storage Area Network (SAN), Network Attached Storage (NAS), Direct Attached Storage (DAS), Virtual SAN, AllFlash XtremIO, Atmos, Avamar, , Data Domain, Isilon, Pivotal, ViPR Software Defined Storgae, VMAX, VNX (Celerra and CLARiiON) , VNXe, VPLEX, VSPEX.
Companys strategy of both R&D and scalable acquisitions drives competitive product/service offerings.
3 The Bear Case
EMCs current decelerated growth is secular, not cyclical.
Flash storage and softwaredefined storage will cannibalize traditional hard disk drives.
Public cloud is only a threat (and not an opportunity) that disintermediates IT spend from both EMC (hardware) and VMware (software).
VMwares entrenched vSphere gets displaced by OpenSource and Microsofts HyperV.
Recent premiumpriced acquisitions of Data Domain and Isilon are evidence of lack of internal product development.
4
Valuation and The Bull Case
EMC forward P/E only 11.5X. EMC stub valued at just 45X earnings, ex. VMware stake ($30 billion) and net cash ($8.5 billion) account for 75% of EMCs market cap ($51 billion).
The Bear Case has to be so overwhelming right as to render EMC a broken growth company.
Given the Companys entrenched ecosystem, sticky customers and unparalleled distribution (direct sales force) key new products such as Pivotal (the Android operating system of cloud computing), XtremeIO and ViPR should rampup quickly in the hundreds of millions of dollars.
Companys new $6 billion stock buyback quite accretive at current valuation.
Stock downside 10% to $22. Stock upside/fair value $32$35, or 33% upside. 5
6
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This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions or forecasts will prove to be correct. These comments may also include the expression of opinions that are speculative in nature and should not be relied on as statements of fact.
Wedgewood Partners is committed to communicating with our investment partners as candidly as possible because we believe our investors benefit from understanding our investment philosophy, investment process, stock selection methodology and investor temperament. Our views and opinions include forwardlooking statements which may or may not be accurate over the long term. Forwardlooking statements can be identified by words like believe, think, expect, anticipate, or similar expressions. You should not place undue reliance on forwardlooking statements, which are current as of the date of this report. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events or otherwise. While we believe we have a reasonable basis for our appraisals and we have confidence in our opinions, actual results may differ materially from those we anticipate.
The information provided in this material should not be considered a recommendation to buy, sell or hold any particular security. Fat Pitch Capital, LP "... we try to exert a Ted Williams kind of discipline. In his book The Science of Hitting, Ted explains that he carved the strike zone into 77 cells, each the size of a baseball. Swinging only at balls in his "best" cell, he knew, would allow him to bat. .400; reaching for balls in his "worst" spot, the low outside corner of the strike zone, would reduce him to .230.
In other words, waiting for the Fat Pitch would mean a trip to the Hall of Fame; swinging Indiscriminately would mean a ticket to the minors."
Warren Buffet Robert W. Deaton, CFA Managing Partner Fat Pitch Capital, LP 1355 Greenwood Cliff, Suit #150 Charlotte, NC 28204 T# +980-207-0252 Cell# +704-996-0828 robertdeaton@fatpitchcapital.com www.fatpitchcapital.com
R. J. Meurer, Jr. Managing Partner Fat Pitch Capital, LP 1355 Greenwood Cliff, Suit #150 Charlotte, NC 28204 T# +781-452-7365 Cell# +781-812-3407 rj@fatpitchcapital.com www.fatpitchcapital.com
High Percentage Idea for Manual of Ideas Conference 2014 THE MANUAL OF IDEAS
TM
Our high percentage idea for 2014 is H&R Block. The companys stock looks good when viewed through the prism of our checklist.
The Fat Pitch Capital Checklist:
Durable competitive advantage with fortress balance sheet
High returns on invested capital with low capital intensity
Shareholder oriented management team
A price that affords a margin of safety
Durable competitive advantage World's largest tax preparer 12,000 offices with 80,000 tax professionals
98% brand awareness (similar to Coca-Cola, McDonalds and Walmart)
Over 25 million tax returns filed in 2013
Industry leading client retention
Fortress Balance Sheet No net debt
Foolish flow ratio: (current assets - cash) / current liabilities = 26.18% High returns on invested capital with low capital intensity:
ROA (TTM): 11.9%*
ROE (TTM): 51.8%*
Cap-ex as % of revenue: 4% *Source: Morningstar
Shareholder oriented management team:
William Cobb became CEO in May 2011
Streamlined operations
Shareholder friendly capital allocation FY 2012 Dividends $200 million Share Repurchases: $200 million
FY 2013 Dividends: $217 million Share repurchases: $315 million H & R Block in 2011 H & R Block Today Tax Preparation Assisted Online, Mobile, Desktop International
Financial Services Emerald Prepaid Debit Card Refund Transfer Emerald Advance Line of Credit Peace of Mind A price that provides a margin for safety:
Rev 2900 Ebitda margin 0.3 Ebitda 870 Cap ex% 0.04 Cap ex 116 Taxes 214 FCF 540 FCF yield 7% Shares outstanding 274 Market price 29.53 Market cap 8,091 Net cash 285 Enterprise value 7,806 Free Cash Flow 540 FCF yield 7% Price Target Target price = $38, based on 5% FCF yield
Current price = $29.28
Discount to estimated intrinsic value = 30%
Potential catalysts and opportunities Sell bank
Affordable Care Act expands market by approximately 24 million
Online returns growing faster than leading competitors
Tax plus: Continued growth of Emerald Debit Card HR Block = Fat Pitch MURPHY USA I NC. ( NYSE: MUSA)
BEST I DEAS 201 4
Half Moon Capital 2 Half Moon Capital Disclaimer
Half Moon Capital, LLC (HMC) is not providing investment advice through this material. This presentation is provided for informational purpose only as an illustration of HMCs investment philosophy and shall not be considered investment advice or a recommendation or solicitation to buy or sell any securities discussed herein. As of the date of this presentation HMC continues to own the securities discussed herein. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance.
HMC or its affiliates may engage in securities transactions that are inconsistent with this communication and may have long or short positions in such securities. The information and any opinions contained herein are as of the date of this material, and HMC does not undertake any obligation to update them. Information contained in this presentation has been obtained from sources which we believe to be reliable, but we do not make any representation as to its accuracy or its completeness and it should not be relied on as such.
This material does not take into account individual client circumstances, objectives, or needs and is not intended as a recommendation to any person who is not a client of HMC. Securities, financial instruments, products or strategies mentioned in this material may not be suitable for all investors. HMC does not provide tax advice. Investors should seek tax advice based on their particular circumstances from an independent tax advisor.
In reaching a determination as to the appropriateness of any proposed transaction or strategy, clients should undertake a thorough independent review of the legal, regulatory, credit, accounting and economic consequences of such transaction in relation to their particular circumstances and make their own independent decisions.
3 Half Moon Capital Overview
Launched July 1, 2011 Classic value-oriented investment partnership in the spirit of Benjamin Graham and the original Buffett Partnership Focused on equity securities in less efficient areas of the market Intensive research driven investment process Concentrated portfolio of best ideas Goal: Consistent, positive returns compounded over the longer-term Top 10 performance in 2012 and YTD 2013 in long-bias hedge fund category*
*Per Barclay Hedge rankings 4 Half Moon Capital Investment Philosophy
Value: Trading price significantly divergent from intrinsic value Technical and behavioral dynamics lead to inefficiencies in the near and medium-term Disconnects create asymmetrically skewed risk/ return opportunities Emphasis on margin of safety for downside protection Selectively contrarian mindset Unbiased analysis of overlooked and out-of-favor companies Generalist approach Flexible mandate to look across all industries and sectors for the most appealing opportunities Concentrated fund of high conviction ideas Deep knowledge of each situation provides an edge and mitigates risks
5 Half Moon Capital Sources of Opportunity
Small and mid-capitalization companies Frequently neglected or lack institutional following ($300M - $5B market capitalization) Out-of-favor and misunderstood companies Structural shifts in company and industry dynamics Market overreaction to a large, but solvable challenge Special situations Corporate actions and market events create mis-pricings Perceived complexity or lack of easily accessible information causes investor aversion Spin-offs, post-reorg equities, stressed/distressed, demutualizations, merger securities, recaps, etc.
6 Half Moon Capital Investment Strategy and Process Identify mispriced securities - Idea generation: Systematic screens, news media, recurring situations, personal network, etc. Evaluate reason for the mispricing through intensive research - Assess fundamentals: FCF generation, earnings quality, ROIC and asset value relative to price - Public filings, primary calls, management, trade publications, etc. Find catalysts that may lead to value realization Size Position - Particular consideration to conviction/ edge, liquidity, leverage and market/ sector exposure Closely monitor and track 7 Half Moon Capital Eric DeLamarter - Curriculum Vitae
Prior to founding Half Moon Capital in 2010, Eric DeLamarter earned an M.B.A. from The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School, with a concentration in applied value investing. While attending Columbia Business School, Eric was a research analyst at Stelliam Investment Management, a value-oriented hedge fund, where he focused on identifying and evaluating investment opportunities across various sectors. Prior to Columbia Business School, from 2006 to 2008, Eric was an associate at Lineage Capital, LLC, a middle-market private equity fund, where his responsibilities included evaluating and structuring leveraged buyouts. From 2003 to 2006, Eric was an investment banking analyst at RBC Capital Markets and during 2001, Eric was an equity research summer associate at Merrill Lynch. Eric earned a B.A. in history from the University of Michigan in 2002.
Half Moon Capital
Murphy USA Inc. (NYSE:MUSA) 8 9 Murphy USA (MUSA) Summary Gas stations adjacent Walmart Misunderstood business model Obscured fundamentals Underappreciated return and growth profile Overstated risks Insider buying Several catalysts +50% upside
30.00 32.00 34.00 36.00 38.00 40.00 42.00 44.00 46.00 48.00 A u g - 1 3 A u g - 1 3 S e p - 1 3 S e p - 1 3 S e p - 1 3 O c t - 1 3 O c t - 1 3 O c t - 1 3 N o v - 1 3 N o v - 1 3 N o v - 1 3 D e c - 1 3 D e c - 1 3 NYSE:MUSA - Share Price Note: Net debt includes $131 net proceeds from 12/17 sake if ND ethanol plant Current Trading Statistics (USD in Millions)* Ticker NYSE:MUSA Net Debt / LTM EBITDA 0.7x Date 12/27/2013 52-Week Range $46.91 - $36.12 EV / LTM EBITDA 5.9x Stock Price $41.88 EV / 2014 EBITDA 6.4x Shares Out. (Basic) 47.0 EV / LTM EBITDA - capex 6.3x Market Cap $1,968.4 EV / 2014 EBITDA - capex 7.0x Net Debt $249.0 Enterprise Value $2,217.4 Earnings Yield (LTM EBIT/EV) 13.9% EV / LTM FCF 9.5x Earnings Yield (2014 EBIT/EV) 12.2% EV / 2014 FCF 10.4x FCF Yield (LTM FCF/EV) 10.5% FCF Yield (2014 FCF/EV) 9.6% ROIC (LTM) 28.4% Float 95.6% Target Price $65.00 Short Interest 8.8% Premium to Current 55.2% ADTV 20.6 *Except per share data; Note: FCF = EBITDA - capex - cash taxes - chg. WC 10 Background Regional owner and operator of small-format retail gas stations Founded in 1996 based on the European kiosk-style gas station in retail parking lots Focused on volume sale of retail fuel vs C-store merchandise 1,200 locations in the SE and MW, 85% adjacent to Walmart
Murphy Oil (MUR) Spin-off Spun-off from $12B market cap E&P and S&P 500 constituent MUR on August 19, 2013 Rationale: focus business and unlock value
11 Murphy USA (MUSA) Thesis Consensus erroneously focus on lower margins and consolidated financials (which include volatile, non-core segments that have been sold or are being sold) Obscured higher EBITDA and FCF, attractive return profile (ROIC 2x peers) and structural advantages which make the on-going business less sensitive to oil price swings Cursory sell-side coverage, wait and see mentality from buy-side Meaningful recent insider buying; likely year-end portfolio clean-up selling pressure (spin-off) Trading at significant discount to peers and absolute SOTP value 7.1x LTM EBITDA-capex (normalized), 7.0x base case CY2014E EBITDA-capex Equity offers +50% near-term upside Downside protection: Retail segment real estate worth more than current EV Strong balance sheet Catalysts Sale of non-core ethanol plants Estimated after-tax value: $44M-47M Removes low return, volatile segment and focuses the business Increased awareness and appreciation for the quality of the business and its near-term growth prospects Margin expansion from increased composition of larger floor plan stores Announcement of dividend or restructuring (conversion to REIT or MLP) 12 Investment Merits: Overview Operational Advantages 1. Own midstream assets 2. Shipper status on pipelines 3. Relationship with Walmart 4. Small format
Result Maintain competitive fuel gross margins while also being a low cost provider Lower % margins, but much higher dollar margins at the unit level More rapidly manage oil price fluctuations Highly scalable business
13 Investment Merits: Strategic Assets Fuel Sourcing Advantages Midstream Assets: Owns 6 terminals Wholesale business (fuel sales to external customers) Priority is to source low cost gas for retail segment, remainder sold in the market Consolidated within its retail segment numbers for competitive reasons 1B gallons were sold wholesale (to external customers) at a 4c per gallon margin in 2012 Shipper status on Colonial pipeline: Procure gas at lower prices than competitors Opportunistically sell space on the pipeline when prices are elevated (as it did in 2012 for 8c a gallon rather than sell wholesale at 4c) Real Estate Owns +90% of locations
Current Station Sites Midstream Assets x 14 Investment Merits: Walmart Relationship Walmart Relationship +10 year relationship 910 of 1,200 MSUA locations with agreement to purchase and build +200 more over next 3-years Discount program: 1-3c per gallon customer reward paid by WMT Walmart card reduces interchange fee Proximity to highly trafficked supercenters supports high volume model MUSA owned land provides independence
15 Investment Merits: Unit Economics Store Metrics Lower overhead Lower breakeven Higher GM/ ft 2 Higher EBITDA ROIC 2x peers Optimized layout Margins will converge with its peers as converts and rolls out more 1,200 ft 2 stores
* NACS 2012 State of the Industry Report; CST, PTRY, CASY, ATD reporting Note: - Existing footprint: 208 ft2 (77% of locations) and 1,200 ft2 (4% of locations). Average size for CASY, CST, PTRY and SUSS is 3,000 ft2 - Top Quartile' includes MUSA; 'Large Franchises' is comprised of 28 companies (including MUSA) that each have >500 stores Unit Economics Comparison (Annual per Store) ($000s, except unit level data) MUSA Industry* 208 ft 2 Layout 1,200 ft 2 Layout Average Top Quartile Large Franchises Capital Costs Capex - Buildout & Land 1,850 2,100 2,460 2,460 2,460 Capex - Maintenance 26 31 37 43 38 Fuel Gallons Sold 3,324 3,324 1,526 1,985 1,477 Cents/ Gallon 12.9 12.9 18.1 13.2 17.7 Gross Margin 428 428 267 364 262 Breakeven Margin (Cents/ Gallon) 5.5 5.5 8.5 7.5 5.0 Merchandise (Including Foodservice) Revenue 1,860 1,980 1,384 1,968 1,626 Revenue/ ft 2 8.942 1.650 0.461 0.656 0.542 Gross Margin 242 307 392 632 540 GM%Revenue 13.0% 15.5% 28.4% 32.1% 33.2% GM/ ft 2 ($s) 1,163 256 131 211 180 Total Gross Margin 670 735 659 996 801 Overhead (SG&A, CC, etc) 360 360 526 714 593 EBITDA 310 375 132 282 209 EBITDA-Maint. Capex 285 344 95 239 171 ROIC 15.4% 16.4% 3.9% 9.7% 6.9% * NACS 2012 State of the Industry Report; CST, PTRY, CASY, ATD reporting Note: 'Top Quartile' includes MUSA; 'Large Franchises' is comprised of 28 companies (including MUSA) that each have >500 stores; 16 Investment Merits Result Maintain competitive fuel gross margins while also being a low cost provider Operates at 56% of the average industry operating costs with lower breakeven fuel margins* Cash breakeven: 6.6c vs 12.1c industry ave
High volume, low cost position leads to lower % margins than its peers, but much higher dollar margins at the unit level Per store: 50% higher EBITDA and 65% higher FCF per store and 2x the ROIC More rapidly manage oil price fluctuations Largest GM drop from 2010-2011 was 34bps vs 300bps for its public peers Since 2009 fell below cash breakeven only once in Q109
*Per NACS 2013 data 17 Growth Opportunity Open 60 stores/ year with 200 openings over the next 3 years and 400-500 more through 2020 within Walmart network All in the 1,200ft 2 format, financed from FCF, half the land already acquired New stores ramp to capacity almost immediately and each contribute $375k in annual EBITDA or incrementally $75M in EBITDA, $69M EBITDA-mcapex by 2015 Low cost of build-out make business more scalable and flexible
200 Store Expansion Plan Prior to 6/30/2013 12/31/13 12/31/14 12/31/15 Total Land cost/ store($000s) 400 Land acquired (units) 100 50 50 0 200 Land cost ($000s) 40,000 20,000 20,000 0 80,000 Capex/ store($000s) 1,700 Stores built (units) 75 75 50 200 Capex ($000s) 127,500 127,500 85,000 340,000 Total Cost 147,500 147,500 85,000 420,000 GP/ store ($000s) 735 735 735 735 Producing units 25 150 200 GP contribution ($000s) 18,383 110,295 147,060 275,738 EBITDA-Maint. Capex/ store ($000s) 344 344 344 344 Producing units 25 150 200 Total EBITDA-Maint. Capex contribution ($000s) 8,608 51,645 68,860 129,113 Pre-tax return 16% 18 Management CEO Andrew Clyde Joined at the spin-off Formerly downstream industry consultant at Booz & Co. Strategy consultant to MUSA Architect of the optimized 1,200ft 2 format
Insider Ownership Hold 6% of S/O Insider purchases CEO Clyde, 2k shares (12/13-12/16) Direct Deming, 25k shares (11/25)
19 Non-core Assets Ethanol Facilities Began sale of both plants following the spin-off Dec. 19: Sold Hankinson, ND plant for $170M, $131M after-tax 130M gallon capacity sold for $1.31/ gallon Remaining Hereford, TX plant being sold ($47M after-tax value) 105M gallon capacity estimated sale at $0.60/ gallon
Result Removes non-core, low ROIC, volatile business Performance drag: Drought in 2012 compressed corn crush for ethanol, resulting in a $38M hit to MUSA consolidated earnings Proceeds used for debt reduction and future growth capex
20 Renewable Identification Numbers (RINs) Overview RINs are created by blending ethanol and bio-diesel fuels Sold in the market (exchange trading started on CME in May) to companies that are unable to meet annual quotas as set by the EPA In 2012 D6 ethanol RINs traded for $0.05-0.10 per gallon FDAs increasing requirements under Renewable Fuel Standards 2 (RFS2) led to a spike in RIN prices (ethanol RINs up to $1.45 per gallon in July 2013) RINs prices currently $0.30
MUSA RINs created in MUSA Wholesale business (not related to ethanol plants) 15M RINs per month capacity with 100% contribution margin Normalized EBITDA: $30M per year ($0.25 per RIN, 10M RINs/ month)
21 Financial Performance On-going Retail Business Excludes: ethanol and refining (divested in 2011) Strong FCF Profile: Low maintenance capex and zero to slightly negative WC requirements
Financial Performance ($000s) Revenue 2010 2011 2012 LTM Petroleum 13,377,841 16,586,845 16,854,985 16,253,824 Merchandise 1,969,220 2,115,567 2,144,347 2,162,496 Other (RINs) 9,042 9,538 11,708 79,954 Total Revenue 15,356,103 18,711,950 19,011,040 18,496,274 Fuel Gross Profit 484,186 625,683 556,668 602,641 Fuel GM 3.6% 3.8% 3.3% 3.7% Merchandise Expense 1,717,177 1,851,867 1,855,641 1,881,595 Merchandise GM 12.8% 12.5% 13.5% 13.0% Total Gross Profit 745,271 898,921 857,082 963,496 Total GM 4.9% 4.8% 4.5% 5.2% Total EBITDA 263,026 374,110 300,448 377,596 Margin 1.7% 2.0% 1.6% 2.0% EBITDA (ex-RINs) 253,984 364,572 288,740 297,642 Capex Growth 147,347 48,626 72,895 178,145 Maint. (Including Terminals) 29,900 28,890 30,250 23,050 Total Capex 177,247 77,516 103,145 201,195 EBITDA-Maint. Capex 233,126 345,220 270,198 354,546 Less: Chg. WC Less: Taxes (38%) 81,380 123,618 92,059 121,965 Unlevered FCF 151,746 221,602 178,139 232,581 22 Murphy USA (MUSA) Risks Secular decline in gasoline consumption: MUSAs stations are located in the SE and MW, regions with a lower adoption of alternative fuel vehicles and limited transportation alternatives to cars Spike in oil prices: low cost sourcing and history of effectively managing through challenging pricing environments Walmart relationship: MUSA is not permitted to sell higher margin prepared foods, but are allowed to sell fountain drinks. WMT also has right of first refusal on the sale of any MUSA land. Mutually beneficial relationship mitigates risk of separation. MUSA owns land limiting WMTs leverage
Downside Protection Real estate value of retail network greater than current EV Strong balance sheet Asset base could be a source of liquidity (collateral for an ABL or through sale- leasebacks)
23 Valuation Relative Basis 5.9x EV/ LTM EBITDA, 3-4 turns less than its closest peers EBITDA-mcapex and EBIT multiple gap even more pronounced
More attractive return profile, growth prospects, competitive advantages and asset-base (terminals, ethanol plants and 90% of store real estate owned) 9-10x LTM EBITDA implies $65-75 per share, 55-80% upside to current ($59-67 per share, 40-60% upside normalized *)
Peer Comparison (US$ in Millions) LTM LTM EV/ Stores EBITDA/ EBIT/ RE EBITDA Total Fuel Fuel % Capex EV EBITDA EBIT EBITDA EBITDA-MCapex EBIT (000s) Stores Stores ROIC % Owned Margin GM GM of GM % Rev. Casey's General Stores, Inc. CASY $3,404 $375 $254 9.1x 11.5x 13.4x 1,749 $214.7 $145.3 16.4% 99% 5.2% 16.5% 14.2% 23% 4.4% Alimentation Couche-Tard Inc. TSX:ATD.B $17,436 $1,522 $986 10.9x 13.5x 16.7x 5,878 $258.9 $167.8 13.1% 23% 3.7% 12.8% 22.5% 26% 1.5% CST Brands, Inc. CST $3,368 $399 $277 8.4x 9.4x 12.2x 1,034 $385.9 $267.9 23.0% 61% 3.3% 9.8% 18.8% 47% 1.8% The Pantry, Inc. PTRY $1,283 $205 $88 6.2x 9.0x 14.6x 1,562 $131.5 $56.2 6.0% 26% 2.9% 11.4% 11.4% 26% 1.0% Murphy USA Inc. MUSA $2,217 $378 $307 5.9x 6.3x 7.2x 1,179 $320.3 $260.7 28.4% 90% 2.1% 5.8% 12.9% 68% 0.9%
*RINs: 10M gallons/ month x 30c/RIN 24 Valuation Absolute Basis Good business at a low quality business price Normalized LTM: 6.6x EV/ EBITDA, 9.0% FCF yield Normalized 2014: 6.4x EV/ EBITDA, 9.5% FCF yield
Financial Performance ($000s) Revenue 2010 2011 2012 LTM 2014E 2015E Petroleum 13,377,841 16,586,845 16,854,985 16,253,824 16,994,880 18,338,880 Merchandise 1,969,220 2,115,567 2,144,347 2,162,496 2,427,840 2,619,840 Other (RINs) 9,042 9,538 11,708 79,954 36,000 30,000 Total Revenue 15,356,103 18,711,950 19,011,040 18,496,274 19,458,720 20,988,720 Total Gross Profit 745,271 898,921 857,082 963,496 928,231 992,791 Total GM 4.9% 4.8% 4.5% 5.2% 4.8% 4.7% Total EBITDA 263,026 374,110 300,448 377,596 346,561 365,121 Margin 1.7% 2.0% 1.6% 2.0% 1.8% 1.7% EBITDA (ex-RINs) 253,984 364,572 288,740 297,642 310,561 335,121 EBITDA-Maint. Capex 233,126 345,220 270,198 354,546 316,261 332,624 Unlevered FCF 151,746 221,602 178,139 232,581 213,828 223,137 Assumptions: - RINs: 10M gallons/ month x 30c/ RIN; Fuel margin: 13c/ gallon; tax rate: 38%; Ave stores: 1,265 (2014), 1,365 (2015) 25 Valuation Sum-of-the-Parts Analysis (US$ in Millions)* Downside Base Upside Notes MUSA Stores (Core business) EV/ EBITDA 1,500.0 2,800.0 3,150.0 6x $250M EBITDA, 8x and 9x $350M LTM EBITDA (peers trade 8-10x) EV/ EBITDA-mcapex 1,840.0 3,200.0 4,160.0 8x $230M, 10x and 13x $320M LTM EBITDA-capex (peers trade 10-13x) Retail Franchise Asset Value 2,458.0 2,693.8 2,811.7 1,179 x $2.0, $2.2M and $2.3M per owned store + $100M terminal assets MUSA Current (Average above) 1,932.7 2,897.9 3,373.9 MUSA Growth Plan 210.0 300.0 300.0 200 stores over next 2-3 years, cost $2.1M/ store, 20% IRR Ethanol Assets Hankinson, ND 131.0 131.0 131.0 Sold 12/19 for $170M, 130M gallons x $1.31/ gallon ($131M after-tax) Hereford, TX 44.0 47.0 47.0 105M gallons x $0.50-0.60/ gallon; after tax (acquired in 2010 for $40M) Total Proceeds - Assets for Sale 175.0 178.0 178.0 Enterprise Value 2,317.7 3,375.9 3,851.9 Total Debt 642.4 642.4 642.4 Total Cash 262.5 262.5 262.5 Excludes proceeds from Hankinson plant sale Less: Current Net Debt 379.9 379.9 379.9 Equity Value 1,937.8 2,996.0 3,472.0 Equity Value per Share $41.23 $63.75 $73.87 47M shares outstanding Premium to Current (1.6%) 52.2% 76.4% *Except per share data 26 Murphy USA (MUSA) Catalysts Sale of remaining ethanol plant Estimated after-tax value: $44M-47M Removes low return, volatile segment and focuses the business Increased awareness and appreciation for the quality of the business and its near-term growth prospects Demonstrated stand-alone financial performance Margin expansion from increased composition of larger floor plan stores Announcement of dividend or restructuring (conversion to REIT or MLP)
Half Moon Capital
Appendix 27 28 Murphy USA (MUSA): Detailed Financials Notes: - Historically MUSA consolidated financials included refining in 2010 (divested in 2011) and ethanol (being sold) - MUSA does not provide separate financial information for the wholesale segment for competitive reasons - Any fluctuations in its financial contribution can be considered intercompany since the wholesale businesss purpose is to support retail - In order to estimate contribution separately from core- retail, wholesale and RIN, retail EBITDA per store is assumed to be is $320k per year and RIN revenue is assumed to have 100% EBITDA margins Financial Performance ($000s, except unit level data) Revenue 2010 2011 2012 LTM Petroleum 13,377,841 16,586,845 16,854,985 16,253,824 Merchandise 1,969,220 2,115,567 2,144,347 2,162,496 Other (RINs) 9,042 9,538 11,708 79,954 Total Revenue 15,356,103 18,711,950 19,011,040 18,496,274 Fuel Expense 12,893,655 15,961,162 16,298,317 15,651,183 Fuel Gross Profit 484,186 625,683 556,668 602,641 Fuel GM 3.6% 3.8% 3.3% 3.7% Merchandise Expense 1,717,177 1,851,867 1,855,641 1,881,595 Merchandise GM 12.8% 12.5% 13.5% 13.0% Total Gross Profit 745,271 898,921 857,082 963,496 Total GM 4.9% 4.8% 4.5% 5.2% Station Expense 396,053 433,821 447,102 458,464 SG&A 86,192 90,990 109,532 127,436 D&A 55,336 61,136 66,913 70,219 Other 261 449 1,893 2,043 EBIT 207,429 312,525 231,642 305,334 Taxes 81,380 123,618 92,059 121,965 Tax % 39% 40% 40% 40% EAT 126,049 188,907 139,583 183,369 Total EBITDA 263,026 374,110 300,448 377,596 Includes overhead Margin 1.7% 2.0% 1.6% 2.0% EBITDA (ex-RINs) 253,984 364,572 288,740 297,642 EBITDA (Retail, ex-wholesale) 343,680 356,480 367,040 372,640 $320k/store Implied Wholesale EBITDA 9,042 9,538 11,708 4,956 Capex Growth 147,347 48,626 72,895 178,145 Maint. (Including Terminals) 29,900 28,890 30,250 23,050 Total Capex 177,247 77,516 103,145 201,195 EBITDA-Maint. Capex 233,126 345,220 270,198 354,546 Less: Chg. WC Less: Taxes (38%) 81,380 123,618 92,059 121,965 Unlevered FCF 151,746 221,602 178,139 232,581 29 Murphy USA (MUSA): Unit Financials Unit Level (Per store) 2010 2011 2012 LTM Stores Start 1,048 1,099 1,128 1,150 New 51 30 37 30 Closed (1) (1) End 1,099 1,128 1,165 1,179 Avg Number Stores 1,074 1,114 1,147 1,165 Revenue and Costs Fuel margin per gallon (dollars) 0.114 0.156 0.129 NA Gallons sold per month 307 278 277 NA Merch. revenue per month 154 158 156 NA Merchandise margin 13.1% 12.8% 13.5% 13.0% Fuel Costs (Annual) 12,005 14,328 14,210 13,440 Merchandise Costs (Annual) 1,599 1,662 1,618 1,616 Station Costs (Annual) 369 389 390 394 SG&A (Annual) 80 82 95 109 30 Murphy USA (MUSA) M&A Appeal: Private Equity FCF profile and asset base (ie. real estate, terminals) support leverage Lower economic sensitivity Fragmented industry presents consolidation opportunity for an established platform such as MUSA
31 Half Moon Capital Half Moon Capital, LLC 304 Park Avenue South, 11 th Floor New York, NY 10010 Ph: 646.490.6744 eric@halfmooncapital.com www.halfmooncapital.com
Land Developer Needs TLC Build your dream portfolio with UCP Presented by J ake Rosser Date: J anuary 8, 2014 Build Your Dream Portfolio with UCP Company Overview IPO in J uly 2013 at $15.00 per share UCP is a hybrid land developer and home builder Primarily acquires and develops land for residential use Increased push into home building promises to unlock significant value Focused on high growth western markets with three quarters of operations based in California and a growing presence in Washington 1/8/2014 2 Ticker: UCP Price: $14.50 Capitalization Mkt Cap: $266M EV: $208M UCP Build Your Dream Portfolio with UCP UCP, an Orphaned Home-Builder Looking for a Home Poorly received IPO Underwhelming results from conglomerate parent diminished demand Small market-cap ($266M) failed to attract institutional interest Poorly timed IPO Concurrent with IPOs of several mainstream homebuilders including WCI, WLH, TPH and TMHC Taper tantrum hammered housing stocks immediately after IPO Hybrid business model focused on development first and building second adds complexity. 1/8/2014 3 Build Your Dream Portfolio with UCP Wilbur Ross Like History Markings of a Wilbur Ross distressed industry roll-up PICO capitalized UCP in 2008 to take advantage of fire-sale prices during the worst of the housing crisis. Over $190M in capital deployed to take advantage of dislocation in housing market. Over 80% of lots acquired between 2008-2011 at distressed prices 1/8/2014 4 Lots by Vintage Build Your Dream Portfolio with UCP Significant Land Holdings consisting of 6,659 Lots in Strategic Coastal Locations 1/8/2014 5 Build Your Dream Portfolio with UCP Land Portfolio to Fuel Future Growth Ample land supply provides visibility into future development potential No need to recycle cash flow into land replenishment Existing holdings equate to 8 years of supply at current sales pace Deliveries through 2015 sourced from current inventory Land pipeline should allow UCP to grow through the housing recovery Guidance for revenue growth of 100% in 2014 1/8/2014 6 Build Your Dream Portfolio with UCP Hybrid Homebuilding and Land Development Strategy Provides Optionality Flexibility of land development and home building allows for highest return of capital Less capital intensive than home building alone resulting in lower inventory carrying costs Land sale versus development decision is determined by return on capital Land holdings are a hidden asset dampening the need for reinvestment and creating potential for capital return to shareholders. Mark-to-market impairments less likely with land recorded at historical cost 1/8/2014 7 Build Your Dream Portfolio with UCP Significant Value Capture through Home Building Funds raised from IPO will allow UCP to develop its land holdings Home building subsidiary, Benchmark Communities, launched in 2010 Increased community count from 2 to 9 over the last year Expects a doubling of community count in 2014 with approximately 1,100 lots Existing land portfolio capable of supporting 62 communities Increased home deliveries from 5 to 62 on year over year basis during Q3 Rise of 27% in Y/Y home ASPs from $271K to $345K Lower gross margins at 22% compared to 33% for land development but much higher absolute profits 1/8/2014 8 Build Your Dream Portfolio with UCP What is UCP worth? Book value analysis P/B multiple of 1.2 compared to industry average of 2.2 Return of 83% with industry multiple Newly minted Homebuilding IPO peers including TPH, WLH, WCIC and TMHC, possess a P/B value of 1.7 Return of 67% with rerating to IPO peer P/B Direct comp of TPH has a P/B value of 1.9 indicating a potential return of 58% Trades below liquidation value Enterprise value of $208M including net cash of $58M Compare to $171M in real estate assets, carried at historical cost,along with $58M in net cash or $229M 1/8/2014 9 Build Your Dream Portfolio with UCP Long-lived Assets Understate True Economic Value GAAP accounting standards require land be carried at lower of historical cost or fair value Accounting treatment materially undervalues UCPs raw land holdings More than 80% of lots purchased before 2012 with the majority of purchases incurred in 2008/2009, the worst years of the housing crisis. According to Case-Schiller, in UCPs core markets of San Francisco and Seattle, housing prices have risen 53% and 25% respectively from trough levels. 1/8/2014 10 Build Your Dream Portfolio with UCP UCP Markets Have Seen Rapid Price Appreciation Over the Past Year 1/8/2014 11 Build Your Dream Portfolio with UCP Private Buyer Recent Deals Highlight Value Tri-Points (TPH) acquisition (Nov, 2013) of Weyerhaeusers (WY) homebuilding lots. A total of 27,000 lots spread across Arizona, California, Nevada and Texas for $2.7B or $100k per lot On balance, lots in CA are more expensive than lots in AZ, NV and TX Applying comp to UCP equates to $665.9M a 2.2x return from current EV Toll Brothers (TOL) acquisition (Nov, 2013) of lots owned by privately held Shapell Industries A more direct geographical compare to UCPs geographic footprint A total of 5,200 lots concentrated in San Francisco, Los Angeles and Carlsbad TOL paid $1.6B for the lots for a price per lot of $308K. We apply a 70% discount to TOLs per price to account for TOLs focus on higher-end homes. Applying comp to UCP equates to $615M, a 2x return from current EV Debt-free balance sheet enhances appeal of UCP as an acquisition candidate. 1/8/2014 12 Build Your Dream Portfolio with UCP Housing Fundamentals Support Strong Case for Appreciation According to the Case-Shiller 20-city Composite Home Price Index, home prices remain 20% below peak levels. According to NAR, homes are more affordable now than any of the previous 40 years prior to the crash in 2008. Current cycle has legs Most up-cycles in home prices last 5-10 years The US is clearly in a home-price up-cycle that has a lot of room to run. Mark Zandi, Chief Economist for Moodys Analytics Household creation dipped to .5M for five years between 2007-2011, compared to normalized levels of 1M suggesting significant pent-up demand According to NAR, the nationwide supply of homes stands at 5 months compared to a normalized level of 10 months. 1/8/2014 13 Build Your Dream Portfolio with UCP Historic collapse in housing starts Housing starts remain well below trend and would need to hit 1.7M to meet current demand. 1/8/2014 14 Build Your Dream Portfolio with UCP Household Formation has Recovered More Quickly than Housing Starts 1/8/2014 15 Build Your Dream Portfolio with UCP US Households Have Restored Their Balance Sheets 1/8/2014 16 Build Your Dream Portfolio with UCP Risks Real estate cycle J ob growth, interest rates, population growth, and consumer confidence will dictate strength and duration of cycle Execution risk Build-out of new communities must show attractive returns on capital to entice investors Small market cap and thin trading liquidity (75K shares per day) Limited float and small market cap make it less likely that UCP is included in real estate ETFs and index funds Less attractive to institutional investors Majority ownership PICO Holdings 58% ownership could make an acquisition or activist campaigns more difficult 1/8/2014 17 Build Your Dream Portfolio with UCP Catalysts Valuation is its own catalysts - trades below liquidation value Ramp in Home-building operations should spur development in book value Increase in housing starts increases the value of UCPs land portfolio Attractive buyout candidate 1/8/2014 18 Build Your Dream Portfolio with UCP Conclusion Homebuilding operations should catalyze growth in book value and expand margins while creating a long run-way for growth. One of the cheapest ways to participate in the recovery of the housing market Asymmetric return potential with low downside risk and significant upside Simple NAV story, a dollar trading for $0.50 based upon undeveloped land Buyout candidate Homebuilders are land constrained and UCP provides exposure to high growth west coast markets Selling for less than liquidation value with $58M in net cash M&A comps suggest 2x return 1/8/2014 19 Build Your Dream Portfolio with UCP Thank You We try to profit by always remembering the obvious than from grasping the esoteric. It is remarkable how much long- term advantage people like us have gotten by trying to be consistently not stupid instead of trying to be very intelligent. CHARLIE MUNGER 20 CRAWFORD CAPITAL PARTNERS, LP Crawford Fund Management, LLC Two Oliver Street, 6 th Floor Boston, MA 02109 info@crawfordfunds.com Best Ideas 2014 Conference J anuary 8, 2014 January 2014 Important Notices This presentation is not intended as, and does not constitute, an offer to sell any securities or a solicitation of any person or any order to purchase any securities. No person should rely upon information in this document, but should rely exclusively on the Confidential Offering Memorandum in deciding whether to invest in the partnership. This presentation is for informational purposes only and should not be construed as investment, legal, tax or other advice. Investments in the Fund are subject to risks and uncertainties, including the risk of loss of principal as described in the Funds Offering Memorandum. Investors are encouraged to read the Offering Memorandum and direct any questions to management of the Fund prior to investing. There can be no assurance that the Funds objectives will be met or that losses will not be incurred. This confidential document has been prepared solely for the information of the person to whom it has been delivered on behalf of the Fund and may not be reproduced or used for any other purpose. Each person accepting this document agrees to return it to Crawford Capital Partners promptly upon request. This confidential document is accurate as of its date, and no representation or warranty is made as to its accuracy after that date. 2 CRAWFORD CAPITAL PARTNERS, LP January 2014 3 CRAWFORD CAPITAL PARTNERS, LP Leading well-managed player in genetic based diagnostic medicine Exposed to high growth segments in early innings of adoption Innovative companyan R&D leader with a promising pipeline of new products Stock out of favor and heavily shorted due to heightened uncertainty resulting from a Supreme Court ruling, new competition and reimbursement cut threats MYGN($21.11) January 2014 Myriad Current Products 4 CRAWFORD CAPITAL PARTNERS, LP January 2014 Myriad Market Opportunity 5 CRAWFORD CAPITAL PARTNERS, LP January 2014 New Product Pipeline 6 CRAWFORD CAPITAL PARTNERS, LP January 2014 Current New Product Launches 7 CRAWFORD CAPITAL PARTNERS, LP January 2014 MYGN: Core Investment Tenets 8 CRAWFORD CAPITAL PARTNERS, LP Innovative long-term focused company exposed to high growth markets in their infancy IP pioneer in gene diagnostics; leading creator of new products Important growth fieldgene tests add insight to save lives and costsdoctors must adopt to stay relevant; large Intl opportunity Competent management with meaningful stock ownership, Excellent sales, marketing and R&D Protective moats around the business Beyond the tests, MYGN has built proprietary database of gene variants with superior error performance to the public database Reputation built over years with prescribing physicians dealing with critical diseases on a daily basisneed accuracy, comparability, fast turnaround timesvery hard to do thisrequires much more than a lab Largest portfolio of IP resulting from focused accumulation of R&D investment conducted in licensed labs Strong business economics and financial position Strong FCF generator; High and rising ROIC (see appendix), Adding to intrinsic value rapidly No debt and 516 mil in cash ($6.22/share) for buybacks and reinvestment Overblown fears and static sell-side analysis create buying opportunity Supreme court ruling limited in scope leaving much IP intactnotably MYGN-created cDNA Reimbursement cut headlines sound draconian, but in reality are likely to be slower and more moderate than expected Myriad is a step ahead of competition with recent launches and pipeline Maturation of basic BRAC segment is expectedlower prices and competition may accelerate adoption---trade margin for growth High skepticism (45% shorted) creates squeeze conditions if company continues to execute Takeout candidate by a larger firmhopefully after compounding intrinsic value first January 2014 MYGN: Investment Risks/Concerns 9 CRAWFORD CAPITAL PARTNERS, LP Probable end of BRAC Monopoly: Supreme court ruling ended patentability of naturally occurring genes; Synthetic genes created by MYGN remain protected but they will now have to fight to defend them New competition: Major labs with scale (Quest/ Bio-Reference) and smaller players have launched competing product with much lower price points Radical reimbursement cuts: Medicare rates (10-15% of revenue) have seen proposed 48% cuts; private payers may follow suit; court ruling and competition have catalyzed Extreme short interest: Sometimes the shorts are the smart moneymust take the bear case seriously January 2014 MYGN: Valuation Metrics 10 CRAWFORD CAPITAL PARTNERS, LP MYGN BiotechIndustry January 2014 MYGN: Valuation Summary 11 CRAWFORD CAPITAL PARTNERS, LP Our pessimistic DCF valuation suggests a value of: $34/share Pricing for all tests collapses 30% across entire revenue base over 24 months Myriad unit growth fades faster due to competition and despite lower pricing and higher quality product/service Net margin drops from 24% to 15%; Operating margin from 37% to 22%; Cost restructuring keeps it from being even worse Our optimistic DCF valuation suggests a value of: $52/share Pricing drop for all tests contained to 15% over 24 months Myriad unit growth continues on prior trajectory--market share losses offset by higher industry unit growth from lower prices Net margin drops from 24% to 18.5%; Operating margin from 37% to 28%; Cost restructuring keeps it from being even worse Relative valuation metrics (P/E, P/FCF, EV/Sales) look attractive relative to history and growth potential; P/B looks attractive relative to historical and prospective ROE No Credit for additional imbedded call options: Crescendo Bioscience, PARP Collaborations; Companion Diagnostic J Vs; Value accretion from large repurchases of undervalued stock January 2014 Appendix: MYGN ROIC Components 12 CRAWFORD CAPITAL PARTNERS, LP January 2014 Appendix: MYGN Pessimistic Case Summary 13 CRAWFORD CAPITAL PARTNERS, LP January 2014 Appendix: MYGN Optimistic Case Summary 14 CRAWFORD CAPITAL PARTNERS, LP Crestonplc SmallUKmarketingservicesholdingcompanytradingaround8xearnings PresentedbyChristianOlesen OlesenValueFundL.P. www.OlesenValueFund.com christian.olesen@olesenvaluefund.com 6108666200 StopsmokingcampaignconductedbyEMO,oneof Crestonsagencies,fortheUKDept.ofHealth 2 Summary Crestonplc(LSE:CRE,95pasof1/7/14) Owns~20smalladvertising,PRandothermarketingservices agencies,mostlyintheUK Attractivebusiness withverylowcapitalrequirements, mostlyvariablecosts (labor)stable,highfreecashflow Debtfree balancesheet Tradesat8.4x adj.trailingearnings Acquisition bycompetitorHavas orotherbuyerisa possibility,butmaybealongwaysoff Earningsgrowthandmultipleexpansionarelikely 3 Agenda I. BusinessOverview Communications II. BusinessOverview Health III. BusinessOverview Insight IV. HistoryandManagement V. MarginDecline VI. KeyFinancialandValuationData VII. Peers VIII. Catalysts IX. Conclusion X. Q&A XI. AboutOlesenValueFundL.P. 4 BusinessOverview Communications Crestonisaholdingcompanythatownsseveralsmall agencies,whichareengagedinadvertising,PR,market research,andothermarketingservices. 3segments: Communications 55%ofrevenues,46%ofoperatingincome 11agenciesengagedinadvertising,mediarelations,brandconsulting,search marketing,websitecreation,dataplanningandmanagement,crisismanagement, directmarketing,customerrelationshipmanagement(CRM),instoremarketing, outdoormarketing,eventmarketing,andmanyotherareas. AgenciesincludeTullo MarshallWarren,NelsonBostock andEMO Traditionalmedia,online,mobile. Topclients(yearindicateswhenclientrelationshipwasestablished):Danone Baby (99),Unilever(90),Infiniti(07),Diageo(02),Sainsburys(07) ~15%operatingmargin BusinessOverview Health Health 28%ofrevenues,33%ofoperatingincome 9agenciesprovidingadvertising,branding,crisismanagement,publicaffairs, graphicdesign,internalcommunications/salesforceeducation,patienteducation, etc.,primarilytolargehealthcarecompanies AgenciesincludeCooney/Waters,TheCorkery Group,RedDoorCommunications Topclients(yearindicateswhenclientrelationshipwasestablished):Gilead(03), CDC(99),AmgenGlaxoSmithKlineJV(11),Astellas (07),UCB(08) Approx.halfofrevenuesgeneratedinU.S.,therestmostlyUK 2530%operatingmargin 5 BusinessOverview Insight Insight 17%ofrevenues,21%ofoperatingincome 2agencies(ICMandMarketingSciences)providingvariousmarketresearch services,suchasbrandtrackinganddevelopment,categorymanagementresearch, panels,politicalpolling,customerchurn/retentionanalysis,etc. Topclients:Danone Baby(99),Sainsburys(07),Tesco(92),ReckittBenckiser (12),Canon(01) 2030%operatingmargin Halfofrevenuesfromtop20clients,withavg.tenure9years ~20differentagencies Consolidatedoperatingmargin1318%(after~2.5mil. corporateexpenses) 6 HistoryandManagement Formedin2001asreversemergerbyDonElgie; BarrieBrienisCOO&CFO Builtthroughseveralacquisitions,20012006 Financedbymixofearnouts,equityanddebt SoldDLKWin2010atgoodprice,paidbackdebt 3small,conservativeacquisitions,20102012 Elgie andBrienown~4%total;Ibelieveall employeesanddirectorsown1215%(mostly becausesomeearnoutpaymentswereinstock) 7 MarginDecline Marginshavedeclinedsincetherecession DepartureofkeypeopleatICM LossofSanofi account SluggishUKeconomy;poorbusinessconfidence 8 18.5% 18.3% 20.2% 18.5% 19.2% 17.9% 15.9% 13.9% 13.5% 12.8% 0% 5% 10% 15% 20% 25% FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 LTM ConsolidatedOperatingMargin KeyFinancialandValuationData LTMrevenues:74mil. LTMpretaxincomebef.nonrecurringitems, lessnormalizedtaxes:6.9mil.(11.3p/share) Netcash:1.8mil.(excl.1.7mil.earnout liabilities) Marketcap:58mil.(95p/share) Adj.trailingP/E:8.4x Expecteddividendyield:3.8% 9 Peers Crestontradesatthelowestearningsmultiple andhasthe lowestleverageamongitspeers 10 Name Market Cap (USD mil.) Est. P/E Curr FY Net debt-to- EBITA Large, global holding companies WPP 30,192 16.7x 2.0x Publicis Groupe 19,045 18.3x 0.6x Omnicom Group 18,723 19.0x 1.4x Interpublic Group 7,586 21.7x 1.7x Havas 3,285 16.3x 1.8x Miscellaneous marketing firms Dentsu-Aegis 11,592 35.6x 3.2x STW Communications 524 11.5x 1.7x Ipsos 2,418 13.1x 3.6x Smaller, UK-listed marketing services companies Chime Communications 556 17.3x 1.3x M&C Saatchi 372 20.4x 0.4x Huntsworth 351 11.8x 3.2x Cello Group 108 11.9x 1.4x Next Fifteen Communications 85 9.7x 1.4x Creston 95 8.4x (0.0x) Notes: Net debt includes earn-out and similar liabilities. Catalysts InAug2012,Havas bought6%ofCrestonintheopenmarket Nodevelopmentslast1years Corporateexpenses areapprox.25%ofadj.EBITAhigh becauseCrestonissmallforapubliclytradedholding company,savingsshouldbelargeinamerger Ithinkanacquisition byHavas oranotherbuyerremainsa possibility,butmaybealongwaysoff Improvingbusinesssentiment intheUK,possiblehigher utilizationofbalancesheet,andmovingpastpriorissues (ICM,Sanofi)mayboostearningsaswellasthemultiple withinthenext23years. 11 Conclusion 8.4xearningsmultipleisanattractivepriceforthiscompany Valuationconsiderations: Positives: Attractivebusinessmodelwithverylowcapitalrequirements,veryhigh returnoncapital,etc.deservesaboveaveragemultiple Underutilizedbalancesheet(accretiveacquisitions,returnofcapitalto shareholders,lowriskoffinancialdistress,easiertofinanceatakeover) Acquisitionpotential Negatives: Small/illiquidusuallytradesatlowermulple(indenitely) Poormargintrackrecordlastfewyears,butmaybeexplainable Shouldprobablytradeatlowteensmultiple(atleast30%undervalued); intrinsicvalueincreasessteadily overtimeasearningsaccrue If30%undervaluedandvalueincreases10%peryear,20%IRR ifstockfairly valuedin3years 12 13 Q&A 14 Christopher Karlin Aquitania Capital Management, LLC Chimera Investment Corp. (CIM) January 6, 2014 Disclaimer The discussion of portfolio investments represents the views of the investment manager. These views are current as of the date of this commentary but are subject to change without notice. As of the date of this publication, Aquitania Capital Management has a position in the securities mentioned herein and may purchase or sell shares at any time without notice. All information provided is for information purposes only and should not be considered as investment advice or a recommendation to purchase or sell any specific security. Security examples featured are samples for presentation purposes and are intended to illustrate our investment philosophy and its application. While the information presented herein is believed to be reliable, no representations or warranty is made concerning the accuracy of any data presented. Portfolio composition will change due to ongoing management of the portfolios. References to individual securities are for informational purposes only and should not be construed as recommendations by Aquitania Capital Management or its members. Aquitania Capital Management Aquitania Capital Management seeks to maximize risk-adjusted returns by identifying and capitalizing on securities trading at values significantly divergent from their respective fair values through: an intensive fundamental research discipline a private equity valuation methodology an event-oriented perspective Long-Biased, global investor across the capital structure Seeking dislocations where our counterparties are making uneconomic decisions Asymmetric reward-to-risk situations with high conviction in a variant thesis through intensive independent research Securities that are either being accidentally overlooked or actively avoided by most investors Chimera Investment Corp. Chimera (CIM) is a mortgage REIT formed in 2007 and managed by FIDAC, a wholly- owned subsidiary of Annaly Capital Management (NLY) CIM pays FIDAC a flat fee on equity of 1.5% (0.75% from 11/12 until resolution of accounting issues) Chimera primarily owns non-agency residential mortgage backed securities Managing credit risk is the principal value driver Financial leverage is significantly lower at .5x D/E @ 6/30/13 compared to agency mortgage REITS at 5.0x 7.0x Portfolio has great structural leverage from retaining subordinate and mezzanine tranches of re-REMIC securitizations done in 2009 2012 Non-agency portfolio was purchased at very low cost over $2.1b discount on $2.3b fair value portfolio Chimera offers a highly-levered upside to an improving housing market without significant downside exposure Market Capitalization: $3.2b, P/B: 1.1x, Dividend Yield: 11.5% How ACM Views CIM Chimera is effectively a closed-end bond fund selling at a deep discount to NAV Closed-end because of delinquent filer status (which should disappear in 2014) ACM believes CIMs calculation of economic book value is highly conservative Minimal risk Deep discount Modest leverage @ 0.5x D/E for recourse debt Not dependent on continued housing improvement, but exposed to a sharp decline Management is restrained from engaging in value-destructive behavior And there are catalysts Resolution of delinquent filing status Cash flow on maturing securitization deals should increasingly flow to CIM-held paper Large Interest-Only portfolio has negative duration Possible takeout Why Might CIM Be Mispriced? Financial statements are not current due to accounting restatement Potential NYSE delisting resulting from non-current financials Very limited communications with investors GAAP accounting treatment wildly deviates from cash economics Priced below $5 a share Trades with agency mREIT peer group although facing different set of risks and opportunities Mortgage Portfolio Structure Agency Portfolio $2.1b @ 6/30/13 Maintains REIT registration and 40 Act exemption under whole pool test Financed with $1.5b of repos Leverage (D/E) 2.5x Agency portfolio is highly liquid and constitutes dry powder for opportunistic investment Non-Agency Portfolio $2.6b @ 6/30/13 Focused on prime credit: Alt-A ARM, 30Y whole jumbo Unlevered Portfolio primarily created in 2009-2011 at steep discounts and using draconian loss assumptions Structural leverage created by 10 securitizations in 2009-2012 left CIM with subordinate and mezzanine tranches at very low cost basis Management has opportunistically managed credit risk in 2009-2013 period Credit performance has exceeded loss assumptions in 2009-2013 Accounting Issues Essence of accounting restatement is that GAAP treats investment grade (ASC 310-20) and non-investment grade securities (ASC 310-30 & ASC 325-40) differently Impacts whether losses flow through income statement (310-20) or through income statement and other comprehensive income (loss) (310-30 & 325-40) Book value, cash flow and taxable income are not impacted Restating financials requires performing impairment tests on each CUSIP 2012 10-K filed 12/31/13 New Auditor (Ernst & Young) offers unqualified opinion on financials Auditor identifies material weaknesses in internal controls as of 12/31/12 Management implemented resources and processes to remediate weaknesses in 2013 Cash Economics Oxford English Dictionary definition of Chimera: (2) A thing that is hoped or wished for but in fact is illusory or impossible to achieve Accurately conveying the economics of a private mortgage portfolio of subordinate securites via GAAP Accounting bears little relation to cash economics Book value likely understates economic value Most non-agency securities held are private, non-rated and with no public market Loss assumptions used are undisclosed but described as draconian Company estimates fair value then gets broker quotes which often have a 20pt bid/ask Management estimate are used if within broker quote GAAP earnings do not relate to cash flows GAAP earnings driven by large amortization of discounts on securities and Other Than Temporary Impairments GAAP forces recognizing OTTI even if no deterioration in performance of loan Taxable earnings likely exceed cash flows due to amortization of discounts Dividends at 90% of taxable income likely consist of some principal payments Inputs Book Value + Dividends grew 5.6% (est.) in 2013, 21.3% in 2012, 3.1% in 2011 and 11.3% in 2010 Since we cant see CIMs portfolio, what can we look at to validate economics? Monthly reports on the securitizations show how the collateral is performing ABX index pricing and price visibility into comparable underlying securities Changes in housing market Performance and commentary from other mREITs Underlying Collateral Has Performed Well Underlying Collateral Has Performed Well Source: Chimera Financial Update, October 2013 Securitization Collateral Has Performed Well ABX Indices Have Performed Well ABX AAA 2006-1 +9.4% 2012 +0.7% 2013 ABX Indices Have Performed Well ABX AAA 2007-01 ABX Indices Have Performed Well ABX AA 2006-1 Index Scenarios Null Hypothesis CIM reported book value is representative of economic value $2.98 @ 09/30/13, Est. $3.00 at 12/31/13 $2b in accreted discounts were recorded at purchase Variant Hypothesis CIM reported book value understates economic value Underlying collateral has shown significant improvement Market pricing on comparable securities has risen faster than growth in CIM book + dividends Housing market has markedly improved in last 24 months Loss assumptions set at purchase date (heavily weighted to 2009-2011) were highly conservative Estimated Portfolio at 6/30/13 Consolidated RMBS & Loans 4,118,000 $ 58% Consolidated RMBS & Loans, Retained 1,746,005 $ 37% Agency RMBS 2,059,000 $ 44% 2,059,000 29% Non-Agency RMBS 497,000 11% 497,000 7% Non-Agency Senior IO 284,000 6% 284,000 4% Cash & Equivalents 142,000 3% 142,000 2% 4,728,005 $ 100% 7,100,000 $ 100% Repurchase Agreements, Agency RMBS (1,470,000) (1,470,000) Other Assets Other Liabilities (165,000) $ Economic Book Value 3,093,005 $ Economic Book Value per share 3.01 $ Figures in blue are ACM estimates GAAP Portfolio Economic Portfolio 6/30/2013 Securitization Waterfall Consolidated Securitizations Total Original Face Total Tranches Sold Total of Tranches Retained Amount 9,187,991 $ 5,252,316 $ 3,935,676 $ % of Original Face 43% Consolidated Securitizations Total Remaining Face Remaining Face of Tranches Sold Remaining Face of Tranches Retained Amount 5,086,648 $ 1,974,339 $ 3,112,309 $ % of Original Face 55% 38% 79% % of Remaining Face 61% 2008 - 2010 Securitizations Total Remaining Face Remaining Face of Tranches Sold Remaining Face of Tranches Retained Amount 4,316,166 $ 1,280,696 $ 3,035,469 $ % of Original Face 47% 24% 77% % of Remaining Face 70% At Origination As of June 30, 2013 Valuation Asset/Liability Prinicpal/Notional Value Senior 126 $ 57.02 $ 71.85 $ 67.00 $ 88.00 $ 80.00 $ 100.80 $ 90.00 $ 113.40 $ Senior, interest only 3,012,868 4.51 135,880 4.08 122,869 15.00 451,930 25.00 753,217 Subordinated 1,057,821 44.72 473,058 51.79 547,794 65.00 687,584 75.00 793,366 Subordinated, interest only 256,072 6.32 16,184 6.35 16,253 10.00 25,607 20.00 51,214 RMBS transferred to consolidated VIEs, retained 3,600,000 33.33 1,200,000 42.88 1,543,782 55.00 1,980,000 62.50 2,250,000 Securitized loans held for investment, retained 77,500 100.00 105,000 140.03 108,524 140.00 108,500 140.00 108,500 8,004,387 $ 24.11 $ 1,930,193 $ 29.23 $ 2,339,310 $ 40.65 $ 3,253,722 $ 49.43 $ 3,956,411 $ Agency RMBS 1,756,580 $ 103.09 1,810,858.32 $ 102.85 $ 1,806,697 1,806,697 1,806,697 Repurchase agreements, Agency RMBS (1,528,025) (1,528,025) (1,528,025) Other Assets 674,453 $ 674,453 $ 674,453 $ Other Liabilities (166,014) (166,014) (166,014) Economic Book Value 3,126,421 $ 4,040,833 $ 4,743,522 $ Economic Book Value Per Share 3.04 $ 3.93 $ 4.62 $ Upside from 1/3/14 closing price of $3.14 25% 47% Figures in blue are ACM estimates Cost Basis 12/31/12 Fair Value ACM Low Est. Value ACM High Est. Value Catalysts Regaining current filing status 2011 10K was filed on 3/8/13 2012 10-K was filed on 12/31/13 2013 10-Qs and 10-K should be filed over the next few months Annaly is likely to purchase CIM once financials are clean CIM has been unable to raise equity and will not be able to raise equity via S-3 until achieving 1 year as a current filer Annaly modified its charter to allow for up to 25% non-agency securities Annaly recently acquired CreXus which it also managed CreXus was an mREIT focused on CMBS 1.1x book value, 13% premium Annaly currently owns 4.4% of CIM Catalysts Cash flow should increase significantly Securitizations create tranches that receive cash flow both simultaneously and sequentially CIM sold off most of the senior tranches The subordinated tranches should begin receiving increasing amounts of monthly cash flow as the senior tranches are paid off Improving performance on the underlying provides further support Filing status provides insurance against dilution at the expense of accelerating portfolio growth A Q U I T A N I A C A P I T A L M A N A G E M E N T 4 7 0 0 N C A P I T A L O F T E X A S H WY . , S U I T E 5 2 4 A U S T I N , T E X A S 7 8 7 4 6 5 1 2 3 2 9 - 5 9 9 9 I N F O @A Q U I C A P . C O M WWW. A Q U I T A N I A C A P I T A L . C O M Contact JANUARY 2014
Young Capital Management, LLC Austex Oil Best Ideas 2014 DISCLAIMER IMPORTANT NOTICE The Presentation does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities. Any such offer or solicitation will be made in accordance with applicable securities laws. The Presentation is being provided on a confidential basis solely to those persons to whom this Presentation may be lawfully provided. It is not to be reproduced or distributed to any other persons (other than professional advisors of the persons receiving these materials). It is intended solely for the use of the persons to whom it has been delivered and may not be used for any other purpose. Any reproduction of the Presentation in whole or in part, or the disclosure of its contents, without the express prior consent of Young Capital Management, LLC (the Company) is prohibited. No representation or warranty (express or implied) is made or can be given with respect to the accuracy or completeness of the information in the Presentation. Certain information in the Presentation constitute forward-looking statements about potential future results. Those results may not be achieved, due to implementation lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. Nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance or otherwise. The views, opinions, and assumptions expressed in this presentation are as of December 2013, are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy or investment. The Presentation does not purport to contain all of the information that may be required to evaluate the matters discussed therein. It is not intended to be a risk disclosure document. Further, the Presentation is not intended to provide recommendations, and should not be relied upon for tax, accounting, legal or business advice. The persons to whom this document has been delivered are encouraged to ask questions of and receive answers from the general partner of the Company and to obtain any additional information they deem necessary concerning the matters described herein. None of the information contained herein has been filed or will be filed with the Securities and Exchange Commission, any regulator under any state securities laws or any other governmental or self-regulatory authority. No governmental authority has passed or will pass on the merits of this offering or the adequacy of this document. Any representation to the contrary is unlawful. Young Capital holds positions in Austex Oil (AOK AU). It reserves the right to buy or sell those or any other stock at any time without further notification. PAGE 2 Young Capital Management, LLC Introduction to Josh Young/ Young Capital CIO of Young Capital Management, LLC - launched in September 2010, with a focus on public and private oil and gas investments
Josh was previously an Investment Analyst for Karlin Asset Management, a multi-billion dollar, single family office, nominated as Institutional Investors Single Family Office of the Year in 2008 Meaningful participant in public equity offerings of small oil and gas e&ps (data publicly available from deal tracking services), some up 3x+ within 24 months
Profiled in Oil and Gas Investor Magazine, interviewed on the Ellis Martin Report and by The Energy Report, author of numerous Seeking Alpha articles on oil & gas investments
Speaker at industry and investment conferences, including Platts, Louisiana Energy Conference, Oil, Gas & Money Conference, Global Resource Investment Conference, and The Deep Value Summit PAGE 3 Young Capital Management, LLC Past Performance: Deep Value Summit PAGE 4 Young Capital Management, LLC Gastar (GST) traded up >100% within 7 months of pitch at the May 2013 Deep Value Summit Next idea is similar, except more downside protection Less leverage, faster growth, and bigger discount to reserve value Austex Oil (AOK AU / ATXDY) Opportunity Overview Austex is an oil and gas exploration and production company (E&P) Focused on vertical development of a proven, highly economic Mississippi Lime field in Kay County, Oklahoma Austex trades primarily in Australia despite US Assets Australian Stock market has underperformed Austex has been overlooked despite substantial reserve and production growth in the midst of Australian market turmoil Austex stock has substantially lagged its high-growth, oil producing peers despite better drilling economics and rapid growth Discount to comps on EV/EBITDA, EV/production, and EV/reserves Discount to intrinsic value: recent PWC fairness opinion, sell side research, and independent engineer proved reserve value PAGE 5 Young Capital Management, LLC Austex Oil (AOK) Why Austex Small company - easy to look through production growth and economics Small, easily understood quantity of capital deployed Rapid and accelerating production growth, readily observable and still early stage High rates of return Good economics make sustainable growth more likely Seeing substantial production increases in the part of the play they are active in Recent, material outside confirmations of valuation PWC fairness opinion 50-100% premium to stock price Investment bank price targets at 100%+ premium Sophisticated private equity investor (took Herbalife private in 2002) recently bought 30% of company, got incremental reserve engineering report confirming value PAGE 6 Young Capital Management, LLC Austex Oil (AOK) Why Austex Why Austex? Small cap E&Ps have outperformed index, AOK has not Potential for stock price to catch up PAGE 7 Young Capital Management, LLC Austex Oil (AOK) Overview Small, rapidly growing Mississippi Lime Pure-Play Grew from 200 boepd to 1000 boepd in 2012-13 Deployed approximately $25 million in capex Achieved production growth with capital efficiency of ~$32,000 per boepd Austex drills vertical wells and participates as a non-op with Range Resources in horizontal wells Austex has achieved substantially better than average well economics (90+% IRR), far exceeding the 50% IRR shown above in the Credit Suisse chart for the Mississippi Lime PAGE 8 Young Capital Management, LLC Austexs Snake River Project is in a predominantly oily area of the play, in Range Resources (RRC) core area Austex Oil (AOK) Investment Thesis Investment thesis: At $0.135, Austex has a ~$61 million market cap At over 1000 boepd, Austex trades at less than $100,000/boepd, despite substantial growth this year and likely growth next year Comparable companies like Synergy (SYRG) trade as high as- $300,000 per boepd Synergy currently produces ~3,000 boepd At its current growth rate, Austex could be producing 3,000 boepd by the end of 2014, or an implied $20,333 per boepd Austex trades for ~1/4 of its $250 million proved reserve value Most capital efficient, rapidly growing public companies trade at a premium to their proved reserve value RBS and GMP have published research with price targets for Austex stock of $0.28-30 per share PWC fairness opinion in December 2013 with a valuation of $0.20- 0.27 per fully diluted share Incentivized to come out with a low number can triangulate to $0.30+ PAGE 9 Young Capital Management, LLC Austex Oil (AOK) Comparative Economics GMP (international investment bank providing research coverage on AOK) did a study on ~140 oil and gas resource plays, ranking them by their economics If Austex play were included, using GMPs economics from their research report, it would be top decile Companies with top decile plays trade at premiums to their proved reserve values and at high cash flow multiples Comps trade at significant premiums to Austex Austexs field is delineated new wells likely to perform well PAGE 10 Young Capital Management, LLC Austex Oil (AOK) Relevant Comps Austex trades at ~3.5x EV/2014 EBTIDA, and at ~2x EV/Exit rate 2014 EBITDA Trades at <$100,000 per boepd and <$30,000 per exit 2014 boepd Trades at ~1/4 value of proved reserves Most closely resembles Synergy Resources (SYRG), which trades at ~8x EV/2014 EBITDA and at ~4x EV/Exit rate 2014 EBITDA SYRG trades at ~$300,000 per boepd and ~$100,000 per exit 2014 boepd SYRG trades at ~3x value of proved reserves Other rapidly growing oil focused companies trade at ~$150,000 per boepd, ~$80,000 per exit 2014 boepd, and at >1x proved reserves These comps include GPOR, KOG, TPLM, MHR, AREX, PVA, SN and others PAGE 11 Young Capital Management, LLC Austex Oil (AOK) Aligned, High Performing Board Three out of seven seats held as designees for the largest shareholder, which owns 30% of the stock Largest shareholder is entities owned / controlled by Michael Stone, former CEO of JH Whitney, who took Herbalife private in 2002 and public in 2004 This is a recent development, and is a significant step up in corporate governance With the stock trading at 1/3 of proved reserve value and 2x exit 2014 EBITDA, this appears not to have been priced into the stock yet PAGE 12 Young Capital Management, LLC Oil Industry Comparative Economics Austex Oil Introduction to Josh Young, Young Capital
Comparative Economics of Unconventional Plays
Austex Oil (AOK) PAGE 13 Young Capital Management, LLC 1 BOURBON J.P. ROLANDEZ, CFA The L.T. Funds Geneva, January 8th 2013 2 Established 1948 as a sugar mill in the Bourbon island. Established 1948 as a sugar mill in the Bourbon island. The Bourbon island was renamed The Bourbon island was renamed R R union union in 1848. in 1848. Spreads as a diversified conglomerate until 2001. Spreads as a diversified conglomerate until 2001. Focuses on shipping, then marine services since then. Focuses on shipping, then marine services since then. 500 offshore oil & gas services boats in operation. 500 offshore oil & gas services boats in operation. 11 000 employees, 35% Europeans, 33% Africans. 11 000 employees, 35% Europeans, 33% Africans. 96% of its vessels outside Europe (60% in Africa). 96% of its vessels outside Europe (60% in Africa). EUR 1.3 EUR 1.3 Bn Bn sales (e 2013) i.e. 10% sales (e 2013) i.e. 10% cagr cagr since 2005. since 2005. Listed in 1998. EUR 1.5 Listed in 1998. EUR 1.5 Bn Bn Market Cap. Market Cap. What is BOURBON ? 3 SWOT Analysis Strengths Weaknesses Management Offshore oil exploration dependency Strategy Dependency to Total (23% of sales) Co-leader worldwide High debt levels Vessels efficiency Nigeria dependency Young fleet Brazilian market unprofitable Opportunities Threats Size & reputation Key supplier dependency Shallow offshore Price wars by less efficient, older ships, in USD Subsea market Emerging competition in efficient vessels Sales & leasebacks with capital gains Ship leases residual values East African Coast Next growth phase 4 Summary Forecasts (En EUR Mn) 2011 2012 2013 (e) 2014 (e) 2015 (e) Score /10 Sales 1 008 1 186 1 300 1 400 1 500 Sector 7 Operating margin (%) 8,5 13,6 15,9 16,5 16,8 Company 9 Net income 3 52 175,0 275,0 225,0 Management 8 EPS (EUR) 0,10 0,58 1,95 3,06 2,50 Financial analysis 6 ROE (%) 0,5 3,1 11,5 15,9 12,1 Risk analysis 6 Net gearing ratio (%) 138 146 100 80 65 Total 36 5 Investment Case Growth company. Excellent management in a competitive sector. Key competitive advantages operationally Potential for long-term margin improvement Fairly valued (EV/EBITDA 2013e: 8.0x). Financially about to degear, by about 50 %. 6 7 Disclaimer The material in this report was produced by The L.T. Funds. The information and opinions contained in this report have been obtained from public sources believed to be reliable, but no representation or warranty, express or implied, is made that such information is accurate or complete and it should not be relied upon as such. Information and opinions contained in the report are published for the assistance of recipients, but are not to be relied upon as authoritative or taken in substitution for the exercise of judgement by any recipient, and are subject to change without notice. This report is not, and should not be construed as, an offer document or an offer or solicitation to buy or sell any investments.
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THE L.T. FUNDS (2014). All rights reserved. JANUARY 7, 2014 1 BEST IDEAS CONFERENCE 2014 PEPSICO 60 Commerce Drive Wyomissing, PA 19610 www.lountzis.com JANUARY 7, 2014 2 PRESENTATION OUTLINE
PEPSICO BACKGROUND GLOBAL BRANDS LEADING MARKET POSITIONS EMERGING MARKETS ADJACENT CATEGORIES COMPETITIVE OPERATIONAL STRENGTHS FINANCIALS
INVESTMENT THESIS SEPARATE BEVERAGES AND SNACKS TRIAN WHITE PAPER BEVERAGES SNACKS VALUATIONS
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BROADLY DIVERSIFIED FOOD AND BEVERAGE COMPANY GEOGRAPHICALLY 200 COUNTRIES BUSINESS SEGMENTS PEPSICO AMERICA FOODS PEPSICO AMERICA BEVERAGES PEPSICO EUROPE PEPSICO ASIA, MIDDLE EAST, AFRICA GLOBAL PRODUCT MARKET SHARES #1 IN SALTY SNACKS #1 HOT CEREALS #1 SPORTS DRINKS #2 IN CARBONATED SOFT DRINKS #2 FRUIT JUICES
JANUARY 7, 2014 5 PEPSICO KEY FOUNDING EVENTS PEPSI-COLA FOUNDED IN 1898 FRITO-LAY CREATED BY MERGER IN 1961 FRITO COMPANY (ELMER DOOLIN 1932) H.W. LAY COMPANY (HERMAN LAY 1932)
PEPSICO CREATED IN 1965 MERGER OF PEPSI-COLA AND FRITO-LAY
JANUARY 7, 2014 8 PEPSICO 4 BUSINESS UNITS PEPSICO AMERICAS FOODS FRITO-LAY NORTH AMERICA (FLNA) QUAKER FOODS NORTH AMERICA (QFNA) LATIN AMERICAN FOOD AND SNACK BUSINESSES(LAF) PEPSICO AMERICAS BEVERAGES (PAB) NORTH AMERICA AND LATIN AMERICA BEVERAGES PEPSICO EUROPE BEVERAGES, FOODS AND SNACKS IN EUROPE AND SOUTH AFRICA PEPSICO ASIA, MIDDLE EAST AND AFRICA(AMEA) BEVERAGES, FOODS AND SNACKS IN AMEA
JANUARY 7, 2014 9 PEPSICO 6 REPORTABLE SEGMENTS FRITO-LAY NORTH AMERICA (FLNA)
QUAKER FOODS NORTH AMERICA (QFNA)
LATIN AMERICA FOODS (LAF)
PEPSICO AMERICAS BEVERAGES (PAB)
EUROPE
ASIA, MIDDLE EAST, AFRICA (AMEA) JANUARY 7, 2014 10 PEPSICO BUSINESSES AND GEOGRAPHY
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MANUFACTURING
DISTRIBUTION (DSD)
MARKETING
INNOVATION
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SELLING AT 17X 2014 EARNINGS ESTIMATES 11X 2014 EV/EBITDA
KEY ISSUES BEVERAGE INDUSTRY CHALLENGES RISING ADVERTISING AND MARKETING EXPENDITURES DECLINING COMMODITY COSTS RISING MARGINS ADDITIONAL COST CUTT
NEXT FEW YEARS REVENUE GROWTH OF 4-6% EPS GROWTH OF 7-9%
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JANUARY 7, 2014 70 PEPSICO GLOBAL SNACK FOOD SEGMENT GLOBAL INDUSTRY RETAIL SALES 2002-$73 BILLION 2012-$119 BILLION
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GLOBAL SNACK FOOD SEGMENT AMONG BEST FOOD COMPANIES IN THE WORLD WITH HIGHEST MARGINS IN THE US VS PEERS
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BEST CORPORTE LEADERSHIP IN SNACK FOODS OPERATIONALLY CAPITAL ALLOCATION
MOST INNOVATIVE AND ADAPTABLE COMPANY IN THE GLOBAL SNACK FOOD INDUSTRY HISTORICAL INDUSTRY LEADER PRODUCTS SERVICES DISTRIBUTION
TECHNOLOGY DRIVEN AND DATA DRIVEN CULTURE OPERATIONAL EFFICIENCIES REDUCE COSTS IMPROVE PRODUCTION SOURCING DISTRIBUTION
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JANUARY 7, 2014 1 BEST IDEAS CONFERENCE 2014 PREFERRED SECURITIES USB SERIES F (FRAP) WFC SERIES R (FRAP)
60 Commerce Drive Wyomissing, PA 19610 www.lountzis.com JANUARY 7, 2014 2 PRESENTATION OUTLINE PREFERRED STOCK BACKGROUND DESCRIPTION TYPES OF PREFERRED STOCKS TAX BENEFITS MARKET SIZE YIELD HISTORY
USB 6.5% SERIES F (FRAP)
WFC 6.625 SERIES R PFD (FRAP)
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HISTORICALLY TRACE ORIGINS BACK TO 16 TH
CENTURY ENGLAND ISSUED IN THE 1850S IN THE UNITED STATES BECAME A MORE COMMON FINANCING TOOL IN THE 1980S FOR UTILITIES OVER THE PAST SEVERAL YEARS FINANCIAL INSTITUTIONS HAVE BEEN BIGGEST ISSUERS
JANUARY 7, 2014 4 PREFERRED STOCK FEATURES PREDETERMINED DIVIDEND RATE SIMILAR TO CORPORATE DEBTS CLASSIFIED AS EQUITY ON BALANCE SHEET IN BANKRUPTCY SUBORDINATE CLAIMS TO DEBT HOLDERS BUT SENIOR TO COMMON STOCKHOLDERS DIVIDEND PAYMENTS ARE NOT TAX DEDUCTIBLE TO CORPORATE ISSUER FOR TRADITIONAL PREFERRED FACE VALUES ARE $25 AND $1000 $25 FOCUS UPON RETAIL INVESTOR $1000 FOCUS UPON INSTITUTIONAL INVESTOR DIFFERENCE BETWEEN $25 AND $1000 FACE VALUE IS THE $25 DOES NOT TRADE WITH ACCRUED INTEREST WHILE THE $1000 TRADE WITH ACCRUED INTEREST
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HYBRID SECURITY WITH CHARACTERISTICS OF BOTH DEBT EQUITY SENIOR TO COMMON STOCK BUT SUBORDINATE TO OTHER DEBT
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JANUARY 7, 2014 17 PREFERRED STOCK USB 6.5% SERIES F PFD (FRAP) Depositary Shares Each Representing a 1/1,000th Interest in a Share of Series F Non-Cumulative Perpetual Preferred Stock Issuance Date: January 23, 2012 Initial Public Offering Price: $25.00 per depositary share NYSE Symbol: USB.M Earliest Permitted Redemption Date: January 15, 2022 Noncumulative Dividends: Paid quarterly in arrears on January 15, April 15, July 15 and October 15 of each year, commencing on April 15, 2012, when, as and if declared, at a rate per annum equal to 6.50% from April 15, 2012 to, but excluding, January 15, 2022, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 4.468% Liquidation Preference: $25 per depositary share
DIVIDEND PAYMENT 1.625/SHARE 44 MILLION SHARES OUTSTANDING CURRENT YIELD 6.11% YIELD TO CALL 5.53% JANUARY 7, 2014 18 PREFERRED STOCK WFC 6.625 SERIES R PFD (FRAP) Depositary Shares Each Representing a 1/1,000th Interest in a Share of Series R Non-Cumulative Perpetual Preferred Stock Issuance Date: December, 16 2013 Initial Public Offering Price: $25.00 per depositary share NYSE Symbol: WFC.R Earliest Permitted Redemption Date: March 15, 2024 Noncumulative Dividends: Paid quarterly in arrears on March 15, June 15, September 15 and December 15 of each year, commencing on March 15, 2014, when, as and if declared, at a rate per annum equal to 6.625% from March 15, 2014 to, but excluding, March 15, 2024, and thereafter at a floating rate per annum equal to three-month LIBOR plus a spread of 3.69% Liquidation Preference: $25 per depositary share
DIVIDEND PAYMENT 1.65625/SHARE 30 MILLION SHARES OUTSTANDING CURRENT YIELD 6.43% YIELD TO CALL 6.24% JANUARY 7, 2014 19 PREFERRED STOCK
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Post Holdings, Inc. [POST:NYSE] 0 Copyright 2013 Elevation Capital Management Limited 7 8 January 2014 IMPORTANT DISCLOSURE - PART I The information contained in this presentation has been prepared solely for informational purposes and is not intended to be investment advice.
The nancial analysis and documents referenced by Elevation Capital Management Limited (Elevation Capital) regarding Post Holdings, Inc. (POST) are based on publicly available information.
Elevation Capital, believes that the information herein is correct at the time of compilation; however does not warrant the accuracy of the information.
Any assumptions, assessments, estimates, projections or the like (collectively, Statements) regarding future events or which are forward-looking in nature constitute only subjective views, outlooks or estimations, are based upon Elevation Capitals current expectations or beliefs, are subject to change due to a variety of factors, including uctuating market conditions and economic factors, and involve inherent risks and uncertainties, many of which cannot be predicted or quantied and are beyond Elevation Capitals control. Actual results could difer materially from those set forth in, contemplated by, or underlying these Statements. In light of these risks and uncertainties, there can be no assurance and no representation or warranty is given that these Statements are now or will prove to be accurate or complete in any way in the future.
Elevation Capital disclaims any obligation to update the information contained herein and reserves the right to modify or change its conclusions at anytime in the future without notication.
Elevation Capital advises that the Elevation Capital Value Fund is in the business of buying and selling public securities/equities. The Elevation Capital Value Fund owns Post Holdings, Inc. listed on the NYSE as at the date of this presentation. It is possible that there will be developments in the future that cause the Elevation Capital Value Fund to change its position regarding Post Holdings, Inc. and possibly increase, reduce, dispose of, or change the size of its investment in the Post Holdings, Inc.
Elevation Capital and the Elevation Capital Value Fund reserves the right to change its investment in Post Holdings, Inc. at anytime in future without notication.
Copyright 2013 Elevation Capital Management Limited 1 IMPORTANT DISCLOSURE - PART II The content of this material is intended to provide general information only and does not take into account the investment objectives, nancial situation or needs of any particular person. Elevation Capital Management Limited (we, us or our) strongly recommends that any potential investor in our products obtains professional advice as to their individual requirements before making any investment decision.
Elevation Capital Management Limited is registered as a nancial service provider in New Zealand under the Financial Service Providers (Registration and Disputes Resolution) Act 2008 (FSP# 9601). Christopher Swasbrook is also registered under that Act (FSP# 110649); he is, however, not an authorised nancial adviser for the purposes of the Financial Advisers Act 2008. Despite such registration, neither Elevation Capital Management Limited nor Mr Swasbrook are providing any nancial advisory services to any person as a result of the content of this presentation.
All opinions, statements and analysis expressed are based on information believed to be accurate at the date of compilation, but is subject to revision by us at any time. If information is from an external source, we believe that information to be authentic and reliable. We issue no invitation to anyone to rely on this material and intend by this statement to exclude liability for any such opinion, statement and analysis. Reference to taxation or the impact of taxation does not constitute tax advice. The level and bases of taxation may change. Past performance is not necessarily an indication of future returns.
Investments in the Elevation Capital Value Fund and Elevation Capital Global Value Fund of Funds (the Fund/s) are subject to investment risk, including possible delays in repayment and loss of income and capital invested. The value of your investments may fall below the price you paid for them. You may also not earn any income on your investments. Neither Elevation Capital Management Limited, its directors, the trustee of the Funds nor any other person guarantees any particular rate of return on, or the performance of, the Funds, nor do we guarantee the repayment of capital from the Funds.
A copy of the investment statement for the Funds is available from:
Elevation Capital Management Limited, PO Box 911145, Victoria Street West, Auckland 1142, New Zealand; Or by requesting a copy at: info@elevationcapital.co.nz Copyright 2013 Elevation Capital Management Limited 2 A long and storied history 1895 Postum Cereals Company founded by C.W. Post 1925 Acquired Jell-O gelatin 1927 Acquired Bakers chocolate 1928 Acquired Maxwell House cofee 1929 Acquired General Foods Company 1929 Changes name to General Foods Corporation 1985 Acquired by Philip Morris Companies 1989 Philip Morris merged General Foods with Kraft Foods to form the Kraft General Foods division 1995 Kraft General Foods renamed Kraft Foods 2008 Post Cereals spun of from Kraft and merged with Ralcorp Holdings as Post Foods, LLC. 2012 Post Foods unit spun of from Ralcorp as Post Holdings, Inc. and listed on NYSE (7 February)
3 Copyright 2013 Elevation Capital Management Limited Built over the last 117 years 4 Copyright 2013 Elevation Capital Management Limited 1897 1919 1937 1984 2000 2013 Future? Stable Staples Unpredictable Futures Now owns a number of recognised brands 5 Copyright 2013 Elevation Capital Management Limited #3 Player in US ! Third-largest cereals business in the US (10.4%) #1 Kellogg, #2 General Mills, #4 Quaker Oats (PepsiCo) The US Ready-To-Eat (RTE) Cereal industry has approximately 92% household penetration Scale and brands provide a large barrier to entry ! Posts domestic market share declined from approximately 12.2% in FY09 to 10.4% today This was due to a broken network that caused signicant disruption to business under Ralcorp management prior to spin-of Despite this poor performance, Posts cereal business remains highly cash generative 6 Copyright 2013 Elevation Capital Management Limited Kellogg, 34% General Mills, 33% POST, 10.40% Others, 23% US Cereal Market (USD 10 Billion) As at 30 September 2013 Historical nancials dont tell the full story 7 Copyright 2013 Elevation Capital Management Limited POST Kellogg General Mills Share Price * $47.33 $60.43 $49.91 Market Cap * $1.5B $21.9B $31.7B Gross Margin * 39.6% 37.2%
35.6% Operating Margin * 10.4% 10.9% 15.6% Net Margin * 3.0% ** 6.7% 9.8% ROA * 0.9% ** 7.7% 9.2% ROE * 2.1% ** 37.8% 26.2% Net Debt / Equity * 0.67x 2.51x 1.10x P/B * 1.05x 7.72x 4.66x * Data Source: Thomson Reuters as at 16 December 2013 Post as at 30 September 2013, Kellogg as at 28 September 2013 and General Mills as at 25 August 2013 ** Based on adjusted net earnings of $31.1M reported by Post as at 30 September 2013 8 Copyright 2013 Elevation Capital Management Limited from a low growth single category participant to a consumer products holding company, operating in center-of-the-store, active nutrition and private label categories. * Post is transforming * From POST 2013 Annual Report (page 4) Post is led by an exceptional CEO 8 Unconventional CEOs and Their Radically Rational Blueprint for Success Tom Murphy Henry Singleton Bill Anders John Malone Katharine Graham Bill Stiritz Dick Smith Warren Bufett
"He's probably among the best moneymakers of the past 30 years... he's a Warren Bufett-like character, but stays out of the limelight. - John McMillin (Prudential Securities)
9 Copyright 2013 Elevation Capital Management Limited The only 3 you can invest with today Bill Stiritz - Post Chairman & CEO Bill Stiritz Chairman / CEO ! 79 years old ! Owns 1.1% of Post as of 11 November 2013 based on 32,688,799 shares outstanding ! Base salary of $1 per year, the rest in stock options @ market prices
! 1,550,000 non-qualied stock options were granted at $31.25 per share * in May 2012. 600,000 stock options were granted at $40.30 per share * in October 2013. The options vest over the course of 3 years but are not exercisable until Stiritz is no longer an ofcer of the Company. Stiritz was also granted 312,500 restricted stock units. 10 Copyright 2013 Elevation Capital Management Limited * Closing price of the stock on the date of grant Bill Stiritz - a long history of value creation 1964 Joined Ralston Purina at the Grocery Products Division (pet food and cereals) 1971 Became General Manager of Grocery Products Division 1981 Named CEO of Ralston Purina Company at the age of forty-seven 1980s Initiated an aggressive stock repurchase program 1984 Acquired Continental Baking 1986 Acquired Energizer Battery from Union Carbide for $1.5 billion 1994 Spun-of a collection of smaller brands into a new entity Ralcorp 1998 Sale of the companys protein businesses to DuPont in a $1.5 billion stock deal 1998 Spun-of Agribrands International 2000 Spun-of Energizer Holdings 2001 Agribrands International acquired by Cargill 2001 Nestle acquired Ralston Purina for $10.4 billion 2008 Ralcorp acquired Post Cereals from Kraft Foods for $2.6 billion 2012 Spun-of Post Holdings from Ralcorp 2013 ConAgra acquired Ralcorp for $5 billion
11 Copyright 2013 Elevation Capital Management Limited Bill Stiritz has delivered strong returns 12 Copyright 2013 Elevation Capital Management Limited A dollar invested with Bill Stiritz when he became CEO of Ralston Purina was worth $57 nineteen years later. * * The Outsiders p136-137 He is now at it again 13 Copyright 2013 Elevation Capital Management Limited Since spin-of in January 2012, the Company has ! Repurchased ~5% of outstanding shares at a price of $30.50 (Sept 2012); ! Acquired Attune Foods for $9 million (Jan 2013); ! Acquired Organic and Natural Cereal, Granola and Snacks Business of Hearthside Food Solutions for $158 million (May 2013, 7.3x EBITDA); ! Acquired Premier Nutrition Corporation for $180 million (Sept 2013, 8.4x EBITDA); ! Announced acquisition of Dakota Growers Pasta Company for $370 million (Sept 2013, 8.4x EBITDA); ! Announced acquisition of Golden Boy Foods for CAD 320 million (Dec 2013, 10.6x EBITDA); ! Announced acquisition of Dymatize Enterprises for $380 million (Dec 2013, 9.5x EBITDA)
Posts transformation proceeding rapidly 14 Copyright 2013 Elevation Capital Management Limited Old New Post Foods Ready-To-Eat Cereals (2.5% sales growth in FY13) US Market = ~US10B (Declining 2.2% in FY13) Post Foods Attune Foods Branded and Private Label Natural / Organic Cereals (High single-digit growth) Granola and Snack Active Nutrition Sports Nutrition and Weight Loss (Double-digit growth) Meal Replacement Substitutes Protein Opportunities Private Label Business Private Label Servicing Experienced in private label business from Ralcorp ! Continued rollup following Stiritz's Ralcorp public LBO model Leverage up to achieve higher returns on equity Pruning less protable businesses Expand into related businesses that have higher returns and growth Opportunistic large share buybacks ! Potential Exit Strategies Acquisition target for one of its main competitors in the RTE cereals market ! e.g., Quaker Oats (PepsiCo) Acquisition target for other major players in the Packaged Food Industry ! e.g., ConAgra Sale to Private Equity or Other Stiritzs future strategy for Post? 15 Copyright 2013 Elevation Capital Management Limited Past Transactions = Valuation Benchmark 16 Copyright 2013 Elevation Capital Management Limited Date Acquirer Target Price EBITDA Multiple Sep 2013 Joh. A. Benckiser D.E Master Blenders USD9.8B 16x 2013 EBITDA Feb 2013 BRK/3G HJ Heinz USD27B 13.6x EBITDA Nov 2012 ConAgra Ralcorp USD5.0B 11.0x EBITDA July 2012 Campbell Soup Bolthouse Farms USD1.6B 9.5x 2012 EBITDA April 2012 Nestle Pzer Baby Food Unit USD11.9B 19.8x 2012 EBITDA * Feb 2012 Kellogg Pringles (P&G) USD2.7B 11.0x EBITDA (LTM) July 2011 Nestle Hsu Fu Chi USD1.7B 16.8x EBITDA * March 2011 General Mills 50% of Yoplait USD1.12B 12.6x 2010 EBITDA Jan 2010 Nestle Kraft Foods frozen pizza business USD3.7B 12.5x 2009 EBITDA Jan 2010 Kraft Cadbury USD19.6B 13.0x 2009 EBITDA May 2008 Mars Wrigley USD23B 18.1x EBITDA * July 2007 Kraft Danone biscuit business USD7.2B 13.2x 2007 EBITDA Dec 2001 Nestle Ralston Purina USD10.3B 15.7x 2000 EBITDA Aug 2001 PepsiCo Quaker Oats USD14.4B 16.0x EBITDA March 2001 Kellogg Keebler Foods USD4.7B 10.5x EBITDA Oct 2000 Unilever Bestfoods USD25.1B 14.6x EBITDA Average: 13.0x EBITDA * Excluded from average calculation What is Post potentially worth? 17 Copyright 2013 Elevation Capital Management Limited ! Post is currently trading at a range of 10.7x 11.4x Adjusted EBITDA * ! Industry Transaction Average = 13.0x EBITDA (Based on Elevation Capital data set slide 16) ! If we believe 12x or 13x FY2014 Estimated EBITDA is a fair transaction multiple for the transforming Post Post is trading at a discount (34%-79%) to Elevation Capital Value Funds cost basis Post is trading at a discount (12%-51%) based on a current market price of $47.33 (as at 16 December 2013) EBITDA (US$M) Assumed EBITDA Multiple Est. EV (US$M) Est. Value per Share (US$) Implied Premium / Discount ** EC FY2014 Estimated EBITDA (incl. announced acquisitions) - Low* 316.2 11x 3,478 $43.50 9% 12x 3,794 $53.17 34% 13x 4,110 $62.84 58% EC FY2014 Estimated EBITDA (incl. announced acquisitions) - High* 337.7 11x 3,715 $50.76 28% 12x 4,053 $61.09 54% 13x 4,391 $71.42 79% * Based on a share price of $47.33 as at 16 December 2013, and an Elevation Capital estimated FY2014 EBITDA range of $316.2M ($9.67 per share) to $337.7M ($10.33 per share) ** Based on Elevation Capital Value Fund s cost basis of US$ 39.79 per share Cash Flow + Stiritz = Interesting Opportunity 18 Copyright 2013 Elevation Capital Management Limited POST FOODS
POST HOLDINGS Center-of-the-Store Active Nutrition Private Label Others? Contact Us
Elevation Capital Management Limited PO Box 911145 Victoria Street West Auckland 1142 New Zealand
Copyright 2013 Elevation Capital Management Limited 19 Independent Tinking [In-de-pend-ent Tink-ing] indpendnt THiNkiNG verb Is essential to long term investment success. We are ofen contrarian and do not pay attention to index compositions when making investment decisions. We believe that when youre several thousand miles away from Wall Street in a diferent nation, its easier to be independent and buy the things that other people are selling, and sell the things that other people are buying. We also believe that cash is sometimes the most attractive investment. Disciplined Investing [Dis-ci-plined In-vest-ing] disciplined investing verb Te market presents opportunities every day, but disciplined investing is as much about the opportunities you do not take. Our investments are premised on the concept of Margin of Safety which we believe reduces risk. INDEPENDENT THINKING - DISCIPLINED INVESTING Manitok Energy Inc. Vision to see what others overlook Investors are Hearing the Noise but not Listening to the Facts Randall Abramson, CFA CEO and Portfolio Manager Trapeze Asset Management Inc. Disclaimer This presentation is for informational and reference purposes only and shall not be construed to constitute any form of investment advice. Nothing contained herein shall constitute an offer, solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. Investment accounts and funds managed by Trapeze Asset Management Inc. may or may not continue to hold any of the securities mentioned. Trapeze Asset Management Inc., its affiliates and/or their respective officers, directors, employees or shareholders may from time to time acquire, hold or sell securities mentioned. We have no obligation to update the information contained herein and may make investment decisions that are inconsistent with the views expressed in this presentation. It should not be assumed that any of the securities transactions or holdings mentioned were or will prove to be profitable, or that the investment decisions we make in the future will be profitable or will equal the investment performance of the securities mentioned. Past performance is no guarantee of future results and future returns are not guaranteed.
This presentation does not take into consideration the investment objectives, financial situation or specific needs of any particular person. Trapeze Asset Management Inc. has not taken any steps to ensure that any securities or investment strategies mentioned are suitable for any particular investor. Any information is not to be relied upon in substitution for the exercise of independent judgment.
The information contained herein has been drawn from sources which we believe to be reliable; however, its accuracy or completeness is not guaranteed. We make no representation or warranties as to the accuracy, completeness or timeliness of the information, text, graphics or other items contained in this presentation. We expressly disclaim all liability for errors or omissions in, or the misuse or misinterpretation of, any information contained in this presentation.
All products and services provided by Trapeze Asset Management Inc. are subject to the respective agreements and applicable terms governing their use. The investment products and services referred to herein are only available to investors in certain jurisdictions where they may be legally offered and to certain investors who are qualified according to the laws of the applicable jurisdiction. Nothing herein shall constitute an offer or solicitation to anyone in any jurisdiction where such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such a solicitation. Founded in 1999 Affiliated broker-dealer, Trapeze Capital Corp. (TCC), founded in 1998 Traditionally focused on separately managed accounts TAMI and TCC together have assets under administration of approx. $330 million (12/31/12) Trapeze provides discretionary portfolio management for institutions and high net worth individuals, primarily through separately managed accounts. We are value investors seeking long- term capital growth by investing in securities with potential for above-average appreciation, while striving to avoid permanent loss of capital. We do so using fundamental research and proprietary methodologies About Trapeze Strategies 60% global large cap 40% mid and small cap 100% global large cap 75% corporate bonds 25% dividend paying equities, REITs, prefs Notional guidelines The Manitok Investment Thesis Risk / Reward profile is extremely favourable: Currently trading at $2.15, compared to our estimated value of approximately $4.50 and growing
Experienced team has deployed approximately $3 billion of capital in the Alberta Foothills over many years
Majors have shifted budgets away from the Foothills to unconventional resource plays, the lack of competition reduced land acquisition costs
Relative to unconventional wells, conventional wells decline at lower rates and have greater reserves, implying quick paybacks and higher IRRs
Stock trades at a significant discount to its peers, its reported NAV and its implied value despite having a small amount of debt, an impressive track record of drilling success and production growth
Short Term Noise has Created an Opportunity Recent flow-through financing created an overhang on the stock
Announced the first disappointing well results, at Cabin Creek, perhaps eliminating it as a future core area
Previous COO left the company
Entice acquisition created uncertainty about the future direction
WTI declined and Edmonton par differential widened
Downward revision to 2013 guidance due to disappointing third quarter results related to timing issues and production mix Investment Risks Investing in a junior oil and gas, exploration and production company entails certain risks that are documented in the Companys Annual Information Form and include the following:
Commodity price volatility Production rates may decrease in an unpredictable manner Failure to replace reserves resulting in depletion Access to capital markets and additional funding requirements Uncertainty of reserves estimates based on assumptions prepared by third party engineers Corporate Snapshot (all figures in CAD) MEI (TSX Venture Exchange) Market Capitalization @ $2.15 per share $162 million Common Shares Outstanding (post October financing) 75,530,640 Insider Ownership (undiluted/diluted) 5.9% / 9.4% Total Net Debt as at September 30, 2013 $21.4 million
Current Production 5,500 boe/d Oil Weighting 55% Proved plus Probable Reserves 15 million boe Reserve Life Index 13.2 years Gross Undeveloped Land (84% avg. working interest) 327,900 acres Asset Package Producing Conventional Oil & Gas in Southern Alberta The Foothills large contiguous land package in the Alberta Foothills belt, covering more than 200,000 undeveloped net acres Prospective for light, sweet Cardium oil and Mannville liquids-rich natural gas
Quirk Creek farm-in on lands held by Legacy Oil + Gas in Southern Alberta covering 21 gross sections (13,440 gross acres) Prospective for light, sweet Cardium oil
Entice agreement with Encana grants access to nearly 9 townships (96,800 net acres) near Calgary, Alberta with provisions in the agreement to capture additional sections Primarily prospective for Glauconite, Ellerslie and Nisku light, sweet oil Oil Price to Remain Robust The marginal cost of oil production acts as a floor for the oil price Price may overshoot or undershoot temporarily but the marginal cost of production has been rising at 11% per year 10 30 50 70 90 110 130 150 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Marginal cost The Foothills Opportunity Acquired land in the Foothills near under-utilized infrastructure at attractive prices as majors shifted focus to unconventional resource plays
Original oil in place of up to 20 million barrels per section over six sections
100% drilling success 20 for 20 in the Stolberg area
Discovery of new Cardium oil sheet at Stolberg could add significant production and reserves
Potential value creation in the Foothills (including Northern, Central and Southern Alberta) implies 181 net future development locations and a net present value @10% of $1.4 billion
The FoothillsStolberg A conventional folded, thrust-belt formation Successful exploitation requires experience, seismic data and well control Large NPVs, high IRRs and quick payouts on Stolberg Cardium wells
MEIs Stolberg Wells Are Best in Class Average IP rates have been far above the peer group Continuing Along the Foothills BeltQuirk Creek Farm-in with Legacy Oil + Gas at Quirk Creek in Southern Alberta MEI paid 100% of the costs to drill, complete and equip one Hz Cardium well to earn a 70% WI on 7 sections (3,136 net acres) First well was successful at 200 boe/d, additional well results by February
The Entice Opportunity Agreement with Encana to spend $106 million over a three year period
Covers 96,800 net acres, only 25 km from Calgary
Over 55 log leads on potential oil pools, each pool could have between 500,000 and 8 million barrels of recoverable oil
Potential for risked recoverable oil reserves of 180 million barrels based on primary recovery from Glauconite, Ellerslie, Pekisko, Nisku and other Devonian formations over multiple zones
Large contiguous land base allows the development of efficient, scalable operations: all-in costs per well of $1.6 to $1.9 million projected IRR of 82% to 150% NPV of $3.0 million to $9.0 million per well
3 year primary term plus an option to extend for an additional 3 years
Enticethe Next Core Area Reduces the company-wide risk profile and increases exposure to oil Impressive Track Record of Growth - 1,000 2,000 3,000 4,000 5,000 6,000 Q4/10 2010 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13E 2013 exit Production (boe/d) Light Sweet Crude Generates Big Netbacks $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 Q4/10 2010 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Operating Netbacks ($ per boe) Yet Trades at a Discount to its Peer Group $- $50,000 $100,000 $150,000 $200,000 $250,000 EV/boe/d Share Price Versus Estimate Value $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 Q 1 / 1 2 Q 2 / 1 2 Q 3 / 1 2 Q 4 / 1 2 Q 1 / 1 3 Q 2 / 1 3 Q 3 / 1 3 Q 4 / 1 3 Q 1 / 1 4 Q 2 / 1 4 Q 3 / 1 4 Share Price Estimated Value at $70,000/boe/d Note: Estimated value calculated as $70k x average flowing barrels in the quarter minus net debt, divided by shares outstanding. Q4 2014 estimate is based on exit 2014 production guidance.
Capital Management October 2013 issued 5.6 million common shares on a CEE flow-through basis at $3.60 per share and 1.4 million common shares on a CDE flow-through basis at $3.35 per share
NCIB in place, purchased 2,235,400 common shares YTD at an average price of $2.62 per share, less than 3 to 4 times next years projected funds from operations per share
History of well-timed share issuances:
Management are Astute Buyers of the Stock Hypothetical FCF Calculation from 2014e Production Alone Manitok Energy Hypothetical FCF Calculation Stolberg Well Economics well cost 5 2014E production, annual average 6,100 average WI 75% decline rate 30% first year rate boe/d 354 barrels to replace (boe/d) 1,830 annualized 129,251 total barrels 667,950 net to MEI 96,938 forecasted funds from operations 70 $ in millions less maintenance capex 27 $ wells needed 7 FCF 43 per share 0.57 $ maintenance capex 27 multiple 6x 7x 8x Implied Value 3.43 $ 4.00 $ 4.57 $ Valuation Has never traded as cheaply relative to its valuation metrics
Currently trading at an EV of $35,000 per boe/d, 4.5x Q3 annualized cash flow and 2.3x 2014 cash flow guidance
Trading at a discount to its 2012 reported reserve based NAV/shr of $2.84
Value added through 2013 and the addition of Entice should raise the current NAV to approximately $3.50
Should be trading closer to $4.50 per share based on an EV per boe/d of $70,000, which is supported by the hypothetical FCF valuation
Our private market value estimate is $5.75 per share in a takeout scenario based on an EV per boe/d of $85,000
Catalysts Going Forward Management recently released solid guidance for 2014 and should be rewarded once they deliver on their plans: Average production 6,000 to 6,200 boe/d Exit rate 7,100 to 7,500 boe/d Operating netback of $35.90 per boe Funds from operations of $68 to $72 million
Pending drilling results: Stolberg Cardium Hz well #21 production test results anticipated in January Quirk Creek well #2 is currently being drilled, production testing in February Entice seismic is currently being reprocessed, drill program to begin later in Q1 2014
Additional Upside New Cardium sheet at Stolberg could add significantly to production and reserves in 2014
Success above the conservative expectations at Entice
Any further recovery in natural gas prices could create incremental value for shareholders since the Foothills Belt contains large, liquids-rich gas resources in the Cardium and Mannville formations
Return Potential Could trade at $6.00 per share by the end of 2014 if the stock trades at an EV of $70,000 per boe/d based on current guidance Our 3-year target is over $8 per share or >50%/year potential ROR Full development of the Foothills could create $1.4 billion of value: Vision to see what others overlook www.trapezeasset.com