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UNLOCKING SHAREHOLDER VALUE IN GLOBAL EQUITIES

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Presentation on theme: "UNLOCKING SHAREHOLDER VALUE IN GLOBAL EQUITIES"— Presentation transcript:

1 UNLOCKING SHAREHOLDER VALUE IN GLOBAL EQUITIES
David McBain, Business Development , Altrinsic Global Advisors, LLC

2 TODAY’S DISCUSSION Brief introduction to Altrinsic Global Advisors
The evolving global investment landscape: important developments The return of confidence Three primary and lingering risks Implications and opportunities Discussion / Q&A

3 INTRODUCTION TO ALTRINSIC GLOBAL ADVISORS, LLC
Global equity boutique with approximately CAD 13.9 billion in assets under management1 with offices in Greenwich, London, Sydney and Toronto. Disciplined bottom-up fundamental intrinsic-value process. All-cap, all market, unconstrained in pursuit of investments. Ideas typically fall into two categories: Type 1: Higher quality and undervalued businesses with strong and sustainable financial productivity Type 2: More deeply undervalued businesses in which profitability levels will increase from depressed levels 1As of 06/30/13 in Canadian dollars. 2As of 06/30/13; Based upon a representative fully discretionary account with the global mandate, data is presented as supplemental information to a full disclosure presentation found in the appendix. 3

4 AN “ABSOLUTE VALUE” FOCUS FLEXIBILITY EMBEDDED IN OUR PROCESS
Type 2 companies Type 1 companies Companies with cyclical return profiles and/or those that are currently delivering profitability levels below long-term normalized levels. Higher quality companies with greater and more sustainable return (profitability) profiles. HIGH “Efficient Frontier” VALUE LOW LOW HIGH QUALITY (i.e. ROE, ROIC sustainability)

5 The evolving landscape

6 THE EVOLVING LANDSCAPE
Asset prices have rerated, but uncertainty remains Three primary risks are lingering Implications and opportunities

7 MAJOR CENTRAL BANKS’ BALANCE SHEETS BALLOON IN SIZE
As of 12/31/12 Source: U.S. Federal Reserve (Fed), European Central Bank (ECB), Bank of Japan (BoJ), Bank of England (BoE)

8 … AS LIQUIDITY BYPASSES THE REAL ECONOMY, FINDING ITS WAY TO THE PATH OF LEAST RESISTANCE …
As of 03/31/13. Measured in local currency terms. Source: GSCI, Bank of America, Global High Yield, MSCI, Barclay’s

9 SIGNS OF STABILIZATION IN U.S. HOUSING …
As of 03/31/13 Source: CoreLogic

10 Tangible Equity/Assets
EUROPEAN BRIDGES, IN THE FORM OF VARIOUS ACRONYMS, HAVE REDUCED “TAIL RISK” “Do whatever it takes” rally… Financials dominated 2012 performance… As of 12/31/12; Source: Bloomberg The data shown above is for the time period 01/01/12- 12/31/12. Source: MSCI Company 12 month% return Loans to Deposits Tangible Equity/Assets Credit Agricole +111% 111% 1.8% Societe General +89% 138% 3.6% Unicredit +62% 161% 4.3% Banco Popolare +56% 227% 5.4% As of 12/31/12; Source: Bloomberg

11 Although conditions have improved, we see three primary risk factors worth emphasizing

12 RISK #1 1994

13 RISK #1: 1994 A POSSIBLE DISRUPTION IN CREDIT MARKETS
Source: Bloomberg

14 Total Social Financing
RISK #2: CHINA China’s economy has been supported by credit and financial “innovation.” An unstable foundation. “Traditional” lending growth “Innovative” lending growth Total Social Financing As of 12/31/12 Source: Bloomberg, CEIC

15 RISK #2: CHINA Economic developments in China have far reaching implications Accounts for 40% of the world’s base metal consumption Accounts for 23% of agricultural crop consumption Accounts for 20% of non-renewable energy consumption Imports are 30% of GDP, an important contributor to the global economy

16 RISK #3: POLICY As of 12/31/12 Source: IMF

17 RISK #3: POLICY - INFLATION VS. DEFLATION
Ongoing tug of war between deflationary forces and inflationary policies to persist Deflation? Inflation? As of 03/31/13 Source: Federal Reserve, U.S. Bureau of Economic Analysis, ISI As of 06/30/13 Source: Federal Reserve

18 Implications and opportunities

19 IMPLICATIONS AND OPPORTUNITIES
The Saw.  A rewarding, but jagged and volatile pathway in asset prices, including equities. Greater dislocations at the stock-specific level as macro gives way to micro, as company actions to unlock value have a growing impact on share performance, and as fundamentals reassert themselves in this evolving landscape. New sources of value. “You don’t make money looking in the rearview mirror.”

20 IMPLICATIONS AND OPPORTUNITIES #1
Expect a jagged or sawtooth trajectory in asset prices as deflationary forces battle with inflationary policies. Excessive valuation 90x Excessive leverage on company b/s Important Differences: Valuation Debt: Although consumers and countries have too much debt, companies are generally in good condition Policy action Several 15-30% Swings During Long-term Decline Several 15-30% Swings During Long-term Appreciation As of 03/31/13 Source: FactSet, Altrinsic Research

21 IMPLICATIONS AND OPPORTUNITIES #2 WHERE IS THE VALUE?
As of 03/31/13 Source: Bloomberg, Datastream, Morgan Stanley Research As of 03/31/13 Source: MSCI Barra, FactSet

22 IMPLICATIONS AND OPPORTUNITIES #3
Tremendous value to be unleashed via sensible management teams and/or shareholder activism, mergers and acquisitions As of 12/31/12 Source: FactSet, MSCI, Worldscope, Morgan Stanley Research, Nikkei

23 EXAMPLES: UNLOCKING THE VALUE
Controversial internet/media company spun out of Time Warner in 2009 with market value of $2.5 billion, having been previously valued at just over $100 billion during 2001 merger of the two companies. In 2012, with market cap of $1.8 billion, AOL unlocked $1.1 billion of value via sale of patents, and used proceeds to buy back stock and issue a special dividend worth $500 million to shareholders. High-quality regional bank in Kanagawa Prefecture, located just outside of Tokyo. Offers strong liquidity and capital ratios, improving returns on equity, and management focused on shareholder value. During 2012, the company bought back 3% of stock and paid USD142mm (13.3 bln yen) in dividends, resulting in a total shareholder yield of 5.7% in Japan where prevailing 10-year bonds are yielding a mere 0.73%. U.S.-based disability insurance company with significant opportunities to increase pricing and market share. Proven management with strong operational discipline and shareholder focus. A prudent shareholder/capital return story.  0.9x Book value, yielding 2.0% while buying back approximately 8% in stock, for shareholder yield of 10.4%. The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

24 ASIA-PACIFIC: EXISTING HOLDINGS IN JAPAN
ASIA-PACIFIC: EXISTING HOLDINGS IN JAPAN. VALUE EMERGING IN EMERGING MARKETS Mitsubishi Corporation Bank of Yokohama Sumitomo Mitsui Trust Holdings SMC Suzuki Motor MS&AD Insurance Group NKSJ Holdings Nintendo Inpex Japan Exchange Group Kyowa Hakko Kirin Cheung Kong Golden Agri Resources Incitec Pivot As of 06/30/13, Source: MSCI World (Net) Index. Regional portfolio weights, based upon a representative fully discretionary account with the global mandate, are presented as supplemental information to a full disclosure presentation found in the appendix. The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

25 EUROPE: MULTINATIONAL FRANCHISES PLUS NICHE OPPORTUNITIES
EUROPE: MULTINATIONAL FRANCHISES PLUS NICHE OPPORTUNITIES. SIGNIFICANTLY UNDERWEIGHT BANKS MTN Group Deutsche Börse Siemens Daimler Allianz Adidas E.ON Henkel Carrefour Danone Total Diageo GlaxoSmithKline Anglo American Willis Group Vodafone AON BP Standard Chartered Roche Schlumberger Limited Novartis Nestlé Philip Morris Int’l Foster Wheeler Noble Corporation Ericsson Heineken Covidien As of 06/30/13, Source: MSCI World (Net) Index. Regional portfolio weights, based upon a representative fully discretionary account with the global mandate, are presented as supplemental information to a full disclosure presentation found in the appendix. The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

26 NORTH AMERICA: A GROWING SOURCE OF OPPORTUNITY
Talisman Energy Canadian Natural Resources Kinross Gold Lundin Mining Agrium Unum Wal-Mart Stores General Electric Time Warner Apache PepsiCo Oracle Cisco Systems Prudential Financial Juniper Networks Principal Financial Group Torchmark Baker-Hughes Lorillard Target Comcast BioMarin Pharmaceutical Public Service Enterprise Group Molson Coors Brewing Company Newmont Mining Stillwater Mining AOL HealthSouth Marvell Technology Group The Mosaic Company Exelon Weight Watchers Int’l TIBCO Software Grupo Televisa (Mexico) As of 06/30/13, Source: MSCI World (Net) Index. Regional portfolio weights, based upon a representative fully discretionary account with the global mandate, are presented as supplemental information to a full disclosure presentation found in the appendix. The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

27 AGRIUM: LOW COST NORTH AMERICAN FERTILIZER COMPANY
About Agrium Agrium is a North American based global agriculture company with a market capitalization of $16 billion. It produces and distributes agricultural nutrients, industrial products, and specialty fertilizer. Its low cost production gives Agrium an advantage in global crop inputs, which are in the midst of a secular bull market driven by crop yield pressures. Valuation: 10x P/E x EV/EBITDA % FCF yield Crop inputs are driven by farmer demand and ultimately by crop prices. The tight supply/demand balance in crops has led to historically low stock-to-use ratios and the need for better yield. The security identified above is not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell this security. It should not be assumed that any investment in this security was, or will be, profitable.

28 NOVARTIS: A GLOBAL FRANCHISE GROWING QUICKER THAN THE MARKET RECOGNIZES
About Novartis Located in Basel, Switzerland, Novartis is a global diversified pharmaceutical company. Key drugs include: Glivec for chronic myelogenous leukemia and its follow-on Tasignia Lucentis for age-related macular degeneration Recently launched Gilenya for multiple sclerosis Afinitor for cancer Current pricing does not include the pipeline: Price: 67 CHF Intrinsic Value: 73 CHF Yield: 3.4% Why we like Novartis: Over the next several years, Novartis will lose patent protection on two key revenue-generating drugs, Diovan (hypertension) and Glivec (leukemia). It is our view that Novartis has the ability to grow despite these patent expiries through new drugs and strategic acquisitions. This growth ability is being undervalued by the market. Recent acquisitions include Alcon, an eyecare company with margins and growth rates superior to Novartis’. Additionally, Novartis has launched new drugs like Tasigna (leukemia), Gilenya (multiple sclerosis) and Afinitor (renal cell carcinoma) which will help offset the patent expiries. As new drugs are approved, intrinsic value will rise. 13 pivotal clinical trials are expected to read out over the next 12 months. The security identified above is not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell this security. It should not be assumed that any investment in this security was, or will be, profitable.

29 BANK OF YOKOHAMA: A JAPANESE BANK WITH SIGNIFICANT AVENUES FOR GROWTH
About Bank of Yokohama Bank of Yokohama is the largest bank in the Kanagawa region, which offers some of the best demographic opportunities in Japan. The bank has strong capital levels and an enviable deposit franchise. Management remains very shareholder-friendly, providing a large dividend payout ratio and significant share buybacks. Current pricing is attractive: Price: 67 CHF Intrinsic Value: 73 CHF Yield: 3.4% Why we like Bank of Yokohama: Over the next several years, Novartis will lose patent protection on two key revenue-generating drugs, Diovan (hypertension) and Glivec (leukemia). It is our view that Novartis has the ability to grow despite these patent expiries through new drugs and strategic acquisitions. This growth ability is being undervalued by the market. Recent acquisitions include Alcon, an eyecare company with margins and growth rates superior to Novartis’. Additionally, Novartis has launched new drugs like Tasigna (leukemia), Gilenya (multiple sclerosis) and Afinitor (renal cell carcinoma) which will help offset the patent expiries. As new drugs are approved, intrinsic value will rise. 13 pivotal clinical trials are expected to read out over the next 12 months. The security identified above is not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell this security. It should not be assumed that any investment in this security was, or will be, profitable.

30 SUMMARY Since markets bottomed in March 2009, unconventional policies intending to boost confidence have done so as liquidity largely bypassed the real economy and boosted asset prices (following the path of least resistance) Conditions have improved, but significant imbalances remain Three primary risks (1994, China, Policy) Implications Long term absolute and relative value in global equities, but expect a jagged and volatile pathway in asset prices as deflationary forces battle inflationary policies. Following an episode of extremely high stock correlations, we expect bottom-up factors to resurface as drivers of performance. Potential for significant value to be realized by management teams that are aligned with shareholders and focus on value creation.

31 Thank You FOR ADVISOR USE ONLY
All information is to be treated as confidential and may not be reproduced or redistributed in whole or in part in any manner without the prior written consent of Altrinsic Global Advisors, LLC (“Altrinsic”). The information contained herein shall not be relied upon as a primary basis for any investment decision, including, without limitation, the purchase of any Altrinsic products or engagement of Altrinsic investment management services; there is no and will be no agreement, arrangement, or understanding to the contrary. This material has been prepared by Altrinsic on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. However, no assurances or representations are provided regarding the reliability, accuracy or completeness of such information and Altrinsic has not sought to independently verify information taken from public and third party sources. Altrinsic does not accept liability for any loss arising from the use hereof. Any projections, market outlooks or estimates in this document are forward looking statement and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of Altrinsic. The data and information presented is based on representative accounts and is for informational and illustrative purposes only. Individual client data and information may vary based on different objectives for different clients. This material does not constitute investment advice and should not be viewed as current or past recommendations or a solicitation of an offer to buy or sell any securities or to adopt any investment strategy. Any documents describing Altrinsic’s products or services shall not constitute an offer to sell or a solicitation to buy the securities from any person in any jurisdiction where it is unlawful to do so. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. Any investment views and market opinions/analyses expressed constitute judgments as of the date of this document and are subject to change at any time without notice. Any specific investments referenced may or may not be held by accounts managed by Altrinsic and do not represent all of the investments purchased, sold or recommended for client accounts. Readers should not assume that any investments in securities described were or will be profitable. There are no guarantees that investment objectives will be met. Investing entails risks, including possible loss of principal. Altrinsic may modify its investment approach and portfolio parameters, in the future, in a manner which it believes is consistent with its overall investment objective of long-term capital appreciation and reduced risk. Past performance is no guarantee of future results. No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. This document is not intended for public use or distribution. Copyright © 2013, Altrinsic and/or its affiliates. All rights reserved.


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