WIF & VALKYRIE - STOCK PITCH TUTORIAL

PRESENTATION OVERVIEW

Introduction to Women in Finance and Valkyrie Trading Society

What is a Stock Pitch?
Process of Building a Stock Pitch
Equity Screening
Stock Pitch Structure
Equity Analysis
Equity Valuations
Other Tips
WHO WE ARE
Bocconi Students Women in Finance
Bocconi Students Women in Finance is completely
focused on creating a platform for collaboration
among female students interested in finance.
We believe that creating a strong network of young
women interested in finance will enhance career
opportunities for female students at Bocconi
University, building strong relationships within the
association as well as with our partners.
Valkyrie Trading Society
Valkyrie Trading was created to introduce, discuss
and actively partake in trading/investing related
activities.
We are made up of market aficionados and pride
ourselves following up on the information, opinions
and research we publish.
We focus on short term tactical trading decisions as
well as long term asset allocation.
WHAT IS A STOCK
PITCH
Stock pitches are used by both
buyside and sell side to initiate
discussion on potential investments
A stock pitch is a persuasive summary
of an investment idea for the purchase
of a hold or short sale of an equity
based on its risk/reward
characteristics
Fundamental analysis: both
quantitative and qualitative analysis
Offers insight beyond what may
already priced into the market
A strong stock pitch is your way into
the investment industry
PROCESS OF BUILDING A STOCK PITCH

Screen
Develop
through Decide on
Understand Understand Equity compelling Practice for
equities for an investment
the company the industry valuation investment Q&A
investment position
arguments
opportunity
EQUITY SCREENING
Top-Down Approach
Attractive Top Performing
Equities Best Pick
Industry
Top down investing attempts to capitalize on macro factors
For example, if you bet on the implementation of green energy
policy, renewable energy producers are positioned to benefit
Drivers to consider include government policy, interest rates,
GDP growth, inflation, home growth, lending conditions,
commodity prices, and other macro factors
It is important to explain why that a particular equity is best
positioned to capitalize on the driver
Picking a the right equity provides the opportunity for intelligent equity analysis.
Bottom-Up Approach
Screen on
Broad Universe Best Pick
Fundamentals
Bottom up investors seek to identify investment opportunities
regardless of macro catalysts
Screen based on the companys financial, managerial,
competitive, and strategic attributes as well as valuation
techniques using multiples such as P/E or EV/EBITDA
Because of the lack of macro ties, the focus should be on
creating a cohesive and compelling message for the equity
 PICKING THE INDUSTRY

Avoid complicated industries

Dont talk about banks unless you can analyze their derivative book

Avoid technology (start-ups). Polarizing opinions

If you pick a commodity producer, be sure you understand the commodity

If you pick a specialized company e.g, Insurance, learn insurance terms

Pick an industry you like and are comfortable with. Helps with the learning process

If you must pick a big company, pick one with one business e.g. Google not Berkshire
Remember you will be assessed on your analysis, not the correctness of your recommendation
MOODYS CORPORATION
BERKSHIRE HATHAWAY INC.
MORE ON STOCK SELECTION
DIFFERENT INDUSTRIES

INSURANCE EXAMPLE

Same Store Sales for Kors

Underwriting Profit for Insurance

Net Margin for banks

Find out what it is for the industry

PICKING THE BIG TOBACCO
COMPANY
Reynolds British Altria Philips
Accounting Data is just that, Data. You
must derive information
Gross Margin 61.28% 74.69% 45.02% 64.81%
Altria Adjusted
Gain on AB Inbev/SABMiller Merger:
$13.9B
Operating 84.53% 31.56% 84.70% 40.53%
Company owned shares of SABMiller
Margin
Normalized Income: $5.86B
Normalized P/E: 24
ROA 11.77% 13.58% 36.81% 20.21%
Quick run-down including ratios, mkt
cap e.t.c.
52 Week highs and lows may be ROE 30.39% 71.09% 181.66% -
misleading
Stock screening tools. High ROIC and ROIC 13.07% 19.33% 45.31% 40.43%
Low P/E are good indicators
Again, pick the company you like best P/E 14.88 21.27 9.86 25.32
(based on objective factors).

STOCK PITCH STRUCTURE

1. Company Overview

2. Macro Overview

STOCK PITCH 3. Investment Thesis

STRUCTURE
4. Catalysts/Risks

5. Valuation

6. Conclusion

7. Appendices
EQUITY ANALYSIS:
COMPANY
OVERVIEW
The company overview slide sets the
first impression and is an important part
of your pitch because it introduces your
investment to your audience and
prefaces your investment thesis
Explanation of the business model (how
the company makes money) and
providing a revenue breakdown is
crucial
An overview of the management team
highlighting their industry experience
and background to show managerial
competence can be convincing
An equity performance chart,
capitalization table, and summary of key
financial data can be very informative
additions
For natural resources companies, it is
useful to display an asset map
COMPANY ANALYSIS

COMPANY ANALYSIS DEVELOPING AN INVESTMENT

THESIS

Business Model: Understand what the company

does. Will help with understanding financial
statement.
You should be able to describe the operations to
your grandmother
Describe briefly (Interview or Presentation)
Absolute and Relative Valuation
Different industries different metrics
MICHAEL KORS: OPERATING ANALYSIS
EFFICIENCY & FINANCIAL HEALTH ANALYSIS

Efficiency Ratios KORS Ralph Lauren Prada Hermes Burberry

Days Sales Outstanding 33.9 29.8 30.2 20.8 26.1

Days Inventory 100.2 116.1 201.3 206.8 206.3
Payables Period 29.09 23.25 143.28 145.56 80.47
Cash Conversion Cycle 105.08 122.6 88.25 82.07 151.85
Receivables Turnover 10.76 12.26 12.09 17.53 14.01
Inventory Turnover 3.64 3.14 1.81 1.77 1.77
Fixed Assets Turnover 9.57 5.53 2.63 3.92 6.04
Asset Turnover 1.78 1.25 0.82 0.97 1.22

Liquidity/Financial Health KORS Ralph Lauren Prada Hermes Burberry

Current Ratio 6.1 2.8 1.7 2.67 2.3
Quick Ratio 4.1 1.6 1.0 1.8 1.5
Financial Leverage 1.2 1.6 1.6 1.4 1.6
Debt/Equity 0.0 0.14 0.0 0.0 0.0
EQUITY ANALYSIS:
INDUSTRY
OVERVIEW

The industry overview slide provides

helpful background to which your
company operates within and why it is a
good industry to operate in
Helps to assess the companys
performance relative to that of its peers
and the industry
Includes a description of how the
industry operates, relevant trends, the
competitive landscape, barriers to entry
Avoid industry jargon and communicate
from the perspective of the audience
EQUITY ANALYSIS:
INVESTMENT THESIS

Sound argumentation for why you want

to invest in this equity is pivotal for the
success of your stock pitch
Your argumentation must communicate
why this stock; make sure you focus on
specific qualities of the company
You will be expected to provide sound
analysis in defence of these arguments
during your presentation and answer any
follow-up Q&A
Sourcing growth rates for EBITDA,
percentage-point margins, or asset
values is preferred to qualitative
descriptions
EQUITY ANALYSIS:
RISKS AND
CATALYSTS
A catalyst is an upcoming event that is
expected to impact the price of an
equity; it should change the perception
of a security for better or worst
Generic catalysts include acquisition,
divestitures, earnings release, changes in
competitive landscape, new product
strategy, etc.

Risks inform the investor of potential

downslides to the investment and how to
best execute trading strategy when an
unfavourable event delivers
Every investment downside should be
addressed with a mitigating factor such as
diversification or hedging program
MD&A fillings and sell-side equity
research reports are great places to find
risks
VALUATIONS
 VALUATION: ABSOLUTE & RELATIVE

ABSOLUTE RELATIVE

Financial Analysts use Both Equally

FCF is most important M&A uses more relative

May be done in a separate document For Interview
Explain assumptions Price: PE, PS.
Provide Summary Performance: ROE, ROI.
Justify your valuation approach Stick with the comparables. For Interviews. Remember if
Relatively cheap, might be a good reason for that e.g. slower
growth
RELATIVE VALUATION

APPLICATION Valuing a company based on the value of comparable firms

Information Set (Price divided by a valuation metric)

PE
Relative Kors Industry EV/Sales
Valuation P/B

Price/Earnings 8.6 19.9 Building Blocks

Establish benchmarks (Find Averages)
Price/Sales 1.4 1.4 Find Average of Individual Values
Use Data Sources: Morningstar
Price/Book 3.3 3.0 Compare

Usage (What does it mean?)

Price/
5.6 10.9 Low comparable is good- Undervalued (Qualified)
Cashflow
Notes
Price/Intrinsic Always obtain company data yourself. See next slide
- NA
Value
RELATIVE VALUATION: EXAMPLE
GETTING THE INFO
BIG TOBACCO

Accounting Data is just that, Data. You Metrics Reynolds British Altria Philips
must derive information

Altria Adjusted Gross Margin 61% 75% 45% 65%

Gain on AB Inbev/SABMiller Merger:
$13.9B
Operating
Company owned shares of SABMiller 85% 32% 85% 40%
Margin
Normalized Income: $5.86B
Normalized P/E: 24
ROA 12% 14% 37% 20%

ROE 30% 71% 182% -

ROIC 13% 19% 45% 40%

P/E 14.88 21.27 9.86 25.32

ABSOLUTE VALUATION
Building a DCF
Download Sample DCF Model Online
Modify to suit your needs (Build from scratch). Excel
What is DCF? The Essence
Free Cash Flow (FCF)
WACC to discount. Growth, No
Operating Cash Flow - Capital Expenditures
Growth, Transition (2-step
model)
Estimate Growth Rate
Use previous years (3-5 years) FCF growth to estimate short-term growth
Base, Bear, and Bull Case
In Stable Growth (Terminal Value), Approximate to GDP+
Example: Obtaining the Model
Calculate Discount Rate (WACC)
(Online to assist with Model,
Find Cost of Debt (COD): Simplified Method
then tweak)
Effective Interest Rate=COD= Interest Payment/Debt
Focus: Stable Growth Model
Cost Of Equity (COE): Risk Free Rate + Beta*Market Risk Premium
Risk Free Rate (RFR) is Government Bond Yield Preferably 10yr
Beta can be found online (FT)
Market Risk Premium can also be found online. You have freedom to choose.
Expected Return of Market (Historical data)- RFR
 DCF ANALYSIS
DCF 1 2 3 Terminal Year
CALCULATING DISCOUNT
FCF 1,506.0 1,566.0 1,629.0 2,126.0
RATE
FCF Growth 4.0% 4.0% 4.0% 2.0%
WACC 8.9% 8.9% 8.9% 10.0% WACC
PV 1,382.9 1,438.0 1,495.9 17,553.3
Risk free rate (2016 10yr US Bond-yield) 1.9%

Spread on debt (Damodaran) 0.8%

Company Value: $21.9 billion
Market Cap: $6.1 billion Cost of Debt 2.7%
IMPORTANT!: explain and Justify your assumptions Risk free rate (2016 10yr US Bond-yield) 1.9%

Calculating the WACC Market equity risk premium (Stern) 5.8%

Use the Model. Sum of Weighted COE and COD*Effective tax
rate- tax shield BETA 1.2
Cost of Equity 8.86%
Alternative COD Effective tax rate 30.0%
Risk Free Rate + Spread on Debt (See KORS: 146% Effective i)
WACC 8.9%
 PUTTING IT ALL TOGETHER

Keep Recommendation Consistent. SOMETHING SPECIAL: CRUISE LINER

Show upside potential
If Contradiction, DCF wins!
No Income Tax (shared by industry). A few rules
Industry has float. Insurance Similarities
Company has contracts of $3.15B i.e. liabilities not listed on
balance sheet.
45% of debt is variable. 1% increase in Libor would increase
interest expense by $29.1M
EQUITY ANALYSIS:
CONCLUSION

The conclusion slide summarizes your

pitch in a memorable way for your
audience and is your last impression on
the audience
It is your opportunity to emphasize on
the most important points
Should not include a lot of new
information
Certain valuation information can be
used on the conclusion page if they do
not all fit into the space allocated for
valuations, such as football field, analyst
price targets, implied return
FINAL TIPS

Formatting
A well formatted, professional slide deck sets a good impression on the amount of work and is more visually appealing to the audience
Attention to detail goes a long way in the industry
Simple and consistent is key!
Know Your Stock
Stick to what you know and are interested in - it will make the research and delivery much easier
This will become apparent during follow-up Q&A
The more you know your stock, the more confident you will be during the presentation
Practice
You are essentially selling the company; be confident, calm, articulate, and concise
How you pitch the company is just as important as the pitch youve put so much work into
Anticipate potential questions beforehand and prepare for them
Know Your Audience
Cater your presentation to your audience characteristics, such as age group, corporate culture, sector, etc.
 Q&A
THANK YOU!