General Meeting

Announcements Portfolio Update Market Update Lecture: Asset Pricing Pitch- ALJ Important Dates Meeting Agenda

Announcements

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Announcements Register at usiteam.org/events Fall Portfolio Challenge $5$5 entry fee

Announcements Frisbee with the Board TODAY at 8:30 after meeting South Mall Lawn

Announcements Technical Workshops Every Thursday 7-8 SAC2.120 This Week: Business Quality

Portfolio Update

Portfolio Update- AAPL

Portfolio Update- AIG

Portfolio Update- ENZN

Portfolio Update- ADNC & IDT ADNC: +21.8% IDT: +11.5%

Stupid Stock Chart of the Day +9% -9%

Market Update

Asset Pricing

∞?

Asset Pricing Firm Value =Cash Flow Next Year +Cash Flow The Year After + Etc. *EXPECTED* Expected growth rate of 5% for 2013 Company reports an actual growth rate of 4% at the end of 2013, what happens? All things held equal, stock price will go down

Why? Because if a company’s stock value is just the sum of its future cash flows, then the future cash flows just became smaller, so stock value goes down. Asset Pricing Expected growth rate of 5% for 2013 Company reports an actual growth rate of: 4%: 5%: 6%: Stock price goes down Stock price stays the same Stock price goes up Investing is about finding a stock where your opinion differs from the opinion of all other investors (the EXPECTED performance opinion)

Asset Pricing So if I have to understand a company better than the experts to find a 6% growth rate when the experts expect 5%, how can I hope to compete as a college student? There aren’t an infinite number of experts – small companies aren’t as intensely followed Accounting has major flaws that hide value that not everyone has the time to sift through You are the expert Pension accounting Tax Accounting GAAP Accounting

Asset Pricing Sanity Check 1.) The value of a firm, and thus the firm’s stock is determined by EXPECTED future cash flows for the rest of its life 2.) We look for investments where we have an edge on everyone else to find investments where the reality is going to be better than the expectation We’ll walk through an easy example of cheating GAAP accounting to find hidden value

Asset Pricing Investing is all about having a variant view - thinking differently than everyone else.

MATADOR INVESTMENTS Introduction ANN CAI NIRAJ PAREKH MATTHEW RINDELAUB ANDREW SMITH (NYSE: ALJ)

Investment Thesis 1. Undervaluation – Intrinsic & Relative Undervaluation 2. Tax Advantage (MLP) 3. Strategic Placement Operations Strategy Financials Overview

Investment Strategy Operations Strategy Financials Overview Time Horizon: One year Buy at current market price: $11.49 Stop-Loss at 20%: $9.19 Exit on oil price or technicals

Company Overview Operations Strategy Financials Overview Alon USA Energy, Inc. Alon USA Partners, LP Master Limited Partnership (MLP) Tax Shield Lower cost of capital

OPERATIONS Operations Divider Slide

Operational Divisions Overview Strategy Financials {As a percentage of 2012 revenue} Refining (81.15%) Paramount, CA Long Beach, CA Bakersfield, CA Krotz Springs, LA Big Spring, TX -Fuels marketed to 640 stations under Alon -21 third-party distributions Asphalt (7.53%) 2 nd Largest Supplier for TX, CA Retail and Branded Marketing (11.31%) Owns 298 locations Operations

Gross Margin Overview Strategy Financials Operations Total Daily Production: 250,000 barrels/day California (combined): 70,000 Krotz Springs: 74,000 Big Spring: 70,000 Big Spring: 53% Gasoline 32.5% Jet Fuel & Distillates 5.9% Asphalt

STRATEGY Strategy Divider Slide

Porter’s Five Forces Operations Financials Overview Rivalry Threat of Entrants Buyer Bargaining Power Supplier Bargaining Power Threat of Substitutes Strategy

Strategic Positioning 1. Big Spring Refinery -Midland Locational Advantage -Inexpensive Sour Crude Refining Technology 2. Diversification -C-Store Revenue Streams -California Refineries Overview Operations Financials Strategy

Risks & Mitigation Operations Strategy Financials Overview Volatility of Crude Prices Single Refinery = 60% of Gross Margin Largest Supplier & Customer is J. Aron Continuing dominance of crude over NG Large enough discount margin Past performance Extensive maintenance performed as recently as 2011 J. Aron is fully owned by Goldman Sachs Supply risk is alleviated by Permian Basin expansion

FINANCIALS Financials Divider Slide

Comparables Overview Operations Strategy Financials

Comparables Overview Operations Strategy CVIHFCMROVLOWNRALJ TEV/Unlevered FCF6.1x5.4x19.2x11.6x5.3x3.9x Mkt Cap/Levered FCF 6.0x5.9x17.0x10.5x5.2x2.6x CVIHFCMROTSOVLOWNRALJ TEV/Revenues0.4x 1.9x0.3x0.2x0.3x0.2x TEV/EBITDA2.7x2.8x3.1x5.6x3.8x3.1x2.4x TEV/EBIT3.0x3.1x4.7x6.8x4.7x3.4x3.2x P/E5.8x5.5x15.6x9.9x7.4x7.7x5.2x P/TangBV2.7x2.3x1.3x1.5x1.1x3.0x1.3x CompaniesTicker: Alon USA Energy, Inc.ALJ CVR Energy, Inc.CVI HollyFrontier CorporationHFC Marathon Oil CorporationMRO Tesoro CorporationTSO Valero Energy CorporationVLO Western Refining, Inc.WNR ALJMedian Implied Price TEV/Revenues0.20x0.30x $ TEV/EBITDA2.40x3.10x $ TEV/EBIT3.20x3.40x $ P/E5.20x7.40x $ P/TangBV1.30x1.50x $ TEV/Unlevered FCF3.90x5.75x $ Mkt Cap/Levered FCF2.60x5.95x $ Average Implied Price: $ ALJ Current Price: $ Discount: 46% Financials

Discounted Cash Flow Overview Operations Strategy Financials

Financial Analysis Overview Operations Strategy Financials

MATADOR INVESTMENTS QUESTIONS

Pitch Sign-Ups