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Global Equities

Global Equities. Greg Hopkins: Portfolio Manager June 2012. Process recap - Global. Structured process (‘the 3 M’s”). > R1bn in offshore equities. Detailed analysis. High conviction Buy List. Portfolio. Blue Book – Research done to date.

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Global Equities

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  1. Global Equities Greg Hopkins: Portfolio Manager June 2012

  2. Process recap - Global Structured process (‘the 3 M’s”) > R1bn in offshore equities Detailed analysis High conviction Buy List Portfolio

  3. Blue Book – Research done to date We have invested heavily in our offshore research database

  4. How our process deals with risk

  5. Commonality with buy list

  6. Current portfolio segmentation – PSG Equity

  7. Current portfolio segmentation – PSG Equity Compounders: Quality long term holdings. Tesco, Berkshire, Unilever, Diageo, Imperial Tobacco

  8. Current portfolio segmentation – PSG Equity Mean-reverters: e.g. European stocks and US financials: Alstom, Bank of New York, Vinci

  9. Fund characteristics

  10. Fund characteristics

  11. Global Equity – the opportunity Source : Bloomberg, PSGAM High quality names yield significantly more than bond yields and have grown their dividends at double digit rates

  12. Outlook for global equities The long term outlook for global equities appear to be robust. At similar times over the past 70 years, the opportunity has been multi-decade. European equities have underperformed : we are finding opportunities within this space

  13. A good place to look?

  14. Geographic Allocation

  15. Portfolio returns since inception* * - Manager inception (30st October 2010)

  16. Stock ideas

  17. Tesco: Price chart

  18. Tesco : Negative leverage £1bn investment to kick start the ‘virtuous cycle’ Re-imbursement pressure (govt)

  19. Tesco : Moat Very strong moat in the UK: (Wal-Mart entered UK in 1999)

  20. Tesco : International Market share held or gained in 90% of markets

  21. Tesco – Margin of safety OPPORTUNITY Source : Bloomberg, PSGAM

  22. Tesco – Margin of safety (continued) Source : Bloomberg, PSGAM

  23. Tesco – Margin of safety (continued)

  24. Berkshire Hathaway Source: Bloomberg

  25. Berkshire: Price chart

  26. Berkshire business model Insurance and re-insurance Float Operating businesses and investments* Operating businesses Capital allocation Cash flow Investments Cash flow * - Predominantly, though capital may be deployed in growing the insurance business

  27. Berkshire – deployment of capital Per share investments Over the past decade more capital has been deployed in operating businesses Per share Earnings : Non insurance business Source: Berkshire Annual report 2010

  28. Berkshire intrinsic valuation What will they do with the money?* What do we have now?* * - Two questions Buffet asked when determining his company's intrinsic value, Annual Report 2010

  29. Berkshire intrinsic value “Market price and intrinsic value often follow very different paths – sometimes for extended periods – but eventually they meet.” Berkshire Hathaway Annual report, 2010

  30. Berkshire : Intrinsic value OPPORTUNITY Source: Company, PSGAM

  31. Alstom: What the company does Company makes power generation equipment (coal, nuclear, hydro, gas power plants), it services them, makes transport equipment (rolling stock, signalling) and high voltage equipment (grid)

  32. Alstom: Price chart

  33. Alstom : Order intake Source: Company, PSG Asset Management

  34. Orders have been better than expected... The inflection point in orders occurred in 2011, though the share price appears not be reflecting this

  35. Range of outcomes • Potential upside : • Positive leverage • Some developed market power orders (US gas?) • Inflection point in pricing environment

  36. Margin of Safety OPPORTUNITY Source: Bloomberg, PSGAM

  37. Vinci: Price chart

  38. Vinci : Segmentation • French listed • History back to 1817 • Market cap = $25bn • P/E = 9x • PY = 8.3% Source: Company, PSG Asset Management

  39. Vinci – road concession business CAGR since1970 10 yr CAGR 3 x elasticity to GDP 2.8% 1.5% 0.9%

  40. Vinci financial history vs. Share price Vinci has been able to grow its earnings and book value through tough periods in the past

  41. Vinci financial history vs. Share price Vinci has been able to grow its earnings and book value through tough periods in the past

  42. Vinci financial history vs. Share price OPPORTUNITY Vinci has been able to grow its earnings and book value through tough periods in the past

  43. Bank of New York: Price chart

  44. Bank of New York Mellon

  45. BONY : Business model The toll both Global custodial and asset servicing ($25 trillion) Re-imbursement pressure (govt) Double digit earnings growth Growing financial assets 45

  46. Bank of New York Mellon

  47. Bank of New York Mellon OPPORTUNITY Source: Bloomberg

  48. Summary – Outlook Conviction research (high hit rate) Low portfolio turnover Recent Under-performance Value trap Future mean reversion

  49. Appendix

  50. PSG Global Equity - Top 10 Holdings

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