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General Meeting 7

General Meeting 7. 10.19.2013. Meeting Agenda. Announcements Portfolio Update Market Update Lecture: Asset Pricing Pitch- ALJ Important Dates. Announcements. Announcements. Announcements. Announcements. Announcements. Free Wall Street Journal Subscription for Paid Members.

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General Meeting 7

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  1. General Meeting 7 10.19.2013

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

  3. Announcements

  4. Announcements

  5. Announcements

  6. Announcements

  7. Announcements Free Wall Street Journal Subscription for Paid Members E-mail TREASURER@USITEAM.ORG

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

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

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

  11. Portfolio Update

  12. Portfolio Update

  13. Portfolio Update- AAPL

  14. Portfolio Update- AIG

  15. Portfolio Update- ENZN

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

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

  18. Market Update

  19. Market Update

  20. Asset Pricing

  21. Asset Pricing 2015 2013 2014 ∞?

  22. Asset Pricing Firm Value = Cash Flow Next Year + Cash Flow The Year After + Cash Flow The Year After + Cash Flow The Year After + 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

  23. Asset Pricing Expected growth rate of 5% for 2013 Company reports an actual growth rate of: 4%: Stock price goes down 5%: Stock price stays the same 6%: Stock price goes up 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. Investing is about finding a stock where your opinion differs from the opinion of all other investors (the EXPECTED performance opinion)

  24. 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? Pension accounting Tax Accounting GAAP Accounting There aren’t an infinite number of experts – small companiesaren’t as intensely followed Accounting has major flaws that hide value that not everyone has the time to sift through You are the expert

  25. 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 2018 2013 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

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

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

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

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

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

  31. Operations Divider Slide OPERATIONS

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

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

  34. Strategy Divider Slide STRATEGY

  35. Porter’s Five Forces Overview Operations Strategy Financials

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

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

  38. Financials Divider Slide FINANCIALS

  39. Comparables Overview Operations Strategy Financials

  40. Comparables Overview Operations Strategy Financials

  41. Discounted Cash Flow Overview Operations Strategy Financials

  42. Financial Analysis Overview Operations Strategy Financials

  43. MATADOR INVESTMENTS QUESTIONS

  44. Pitch Sign-Ups

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