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February 6 th 2013

2 nd General Meeting Spring 2013. February 6 th 2013. Meeting Schedule. IM Update. Overview of Investment Management changes, process and perspectives. IR Presentation Info. Explanation of presentation template/sample & changes from past year . Club Schedule & WS Trip.

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February 6 th 2013

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  1. 2nd General Meeting Spring 2013 February 6th 2013

  2. Meeting Schedule IM Update • Overview of Investment Management changes, process and perspectives IR Presentation Info • Explanation of presentation template/sample & changes from past year Club Schedule & WS Trip • Overview of semester plan & Info for Trip • Quick tips on professionalism and recruiting/internships in the spring semester Interview Tips

  3. Meeting Schedule IM Update • Overview of Investment Management changes, process and perspectives IR Presentation Info • Explanation of presentation template/sample & changes from past year Club Schedule & WS Trip • Overview of semester plan & Info for Trip • Quick tips on professionalism and recruiting/internships in the spring semester Interview Tips

  4. Fund Operations & Mechanics: Investment Decisions Formal Stock Pitch to Investment Management - Initial research presented by either IM or IR side - Group-led Q&A and discussion - Industry drivers & company fundamentals questioned - Usually sent for second round of research Step 1: Supported by: - Valuation methodologies - Regression analysis - Proprietary student research - Published Street research Step 2: Q&A Follow-up (after 7+ days of additional research) - Analyst(s) answer previously unanswered questions - Group-led Q&A and discussion - Investment management team decides whether to repeat Step 2 or to pass onto voting process Supported by: - Comfortable understanding of the industry and the company - No rock left unturned InvestmentVotingProcess(after IM team is satisfied) - Held after Investment Management meetings - Occurs when comfortable with fundamental research - Pros and Cons of investment discussed - Investment decision passed onto Advisor Step 3: Supported by: - Thorough discussion - Analysis of affect on sector / portfolio beta - Decision by committee Source: ‘‘Training Student Equity Analysts and Utilizing their Recommendations in Active Portfolio Management’’ by Scott Stewart

  5. Long-Short Investment Fund • Pitches by Investment Management Team will be either/and long-short • Long • Buy the stock hoping it goes up • Short • Borrow the stock, sell it • Buy it back later and return the stock • Stock price must go down • Unlimited downside • Goal • Reduce risk • Improve returns

  6. Meeting Schedule IM Update • Overview of Investment Management changes, process and perspectives IR Presentation Info • Explanation of presentation template/sample & changes from past year Club Schedule & WS Trip • Overview of semester plan & Info for Trip • Quick tips on professionalism and recruiting/internships in the spring semester Interview Tips

  7. Annual Club Timeline Fall Semester Industry Analysis Stock Analysis Review and Preparation Summer Spring Semester Supported by: - Regression analysis - Proprietary student research - Published Street research - Peer-to-peer mentorship Supported by: - Valuation methodologies - Regression analysis - Published Street research - Peer-to-peer mentorship Supported by: - Club management - Club resources - Leadership role incentives - Prior research Maintained Coverage by Investment Management – Constant Re-evaluation

  8. Spring 2013 Company(ies) Recommendation Outline

  9. Fragile Industry; Worthington Strong Does not necessarily mean you will have a buy and sell, could be a mix of Buy/Hold/Sell & LT or ST recommendations • Worthington delivers lowest price point and highest operating margin in manufacturing industry • Strategic acquisitions and vertical integration have positioned industry well to satisfy yet also rely on East Asian consumers • Industry and SCHN limited by Chinese dominance and independence, along with a supply gap leading to market dilution Main arguments can be sourced from last semester; think of impacts on the two companies

  10. Industry Definition • Firms in this industry manufacture semi-finished and finished steel goods through the process of recycling ferrous scrap products and mining of iron ore. • These semi-finished or finished goods primarily service the construction, machinery, automotive industries and other steel service centers both domestic and abroad. Define Who, What, Where. Industry groups can be created if companies compete for: End Market Geography Substitutable Products Nucor Corporation (NYSE: NUE) United States Steel Corporation (NYSE: X) Schnitzer Steel Industries (NASDAQ: SCHN) Commercial Metals Company (NYSE: CMC) Worthington Industries, Inc. (NYSE: WOR) Steel Dynamics, Inc. (NASDAQ: STLD) AK Steel Holding Corporation (NYSE: AKS)

  11. Steel & Scrap Metal Sector Summary Breakdown Industry Breakdown By Market Cap ($BLN) Breakdown By 2011 Revenue1 • Industrial Goods $48,583.4B(100%) • Diversified Machinery $20,057.7B(41.3%) Size should be taken into consideration between the two firms you look at. One maybe be particularly positive/negative due to Size Advantage (synergies, scale etc.) • Steel & Iron$3786.0B(7.8%) • Steel & Scrap Metal Manufacturing$29.48B(.06%) 1Total revenue = $66,935,312,000, Major Players = Recyclers of 2M+ Tons

  12. Revenue Generation: Steel Recycling vs. Steel Manufacturing Obsolete autos, machinery, rail cars, large structures Shear and torch pieces into demanded size/density/purity Crush, sort, bale and shred to classify material Scrap Metal Scrap Ferrous Metal Recycled Steel Transportation Routes Try to Identify the value added that each company provides or how sales are made in the industry, color coding & smart graphics work best Foreign Steel Manufacturers & Domestic SMB Electric Arc Furnaces = Recycled Steel Blast Furnaces = Other components Construction, Machinery, Transportation, Appliances Industries Recycled Steel And Other Components Sheet, Long, Fabricated Steel Products Diagram outlined from SCHN’s 10-K MRB/SMB Business Section. Categorized finished goods into Structural Steel, Heavy Melting Steel and Shredded Scrap.

  13. Company Snapshot – Worthington Industries • Global leader in metal recycling completing acquisitions of over 10 plants ($314 Million TTM)1. • Partners in an additional 5 recycling Joint Ventures, APB acts as major supplier to MRB. Metal Recycling Business Locations A way to look at the company breakdowns is to browse their 10-Ks. Commonly each business has different product, geography, customer and various other segments. All these allow you to understand how trends will affect their competitive positioning. Auto Parts & Finished Products Locations Diagrams provided by schnitzersteel.com 19.1% TTM Revenue

  14. Company Snapshot: Schnitzer Steel Business Revenue: • 25.6% China, 18% USA, 9% South Korea • Weighted GDP Growth: 5.69% • RofTW: 2.30%1 • Risk major Euro Zone exposure in Greece, Spain & Italy • 9/14 major customers are East Asian. • Emerging steel markets in China, India, Turkey and Indonesia With a two company pitch, (Long/Short) trading strategy, comparing and contrasting their segments and business units allow you to begin presenting your argument in regards to why they are valued respectively. 1Compiled from Conference-Board.org , Outlook for 2012 – China 8.6%, USA1.9% and Korea 4.8% SMB: Steel Manufacturing Business APB: Auto Parts Business

  15. Niche Market Location • Asian Market Expansion Trends affect an entire industry. Opportunities are specific to the company and allow for a compettive advantage. • Strategic Pricing • Chinese Independence Increasing

  16. WOR Competitive Advantage In Niche Western Location Map compiled from respective web sites of each of the companies represented, in which they provide a locations map of services

  17. Worthington Recyling Offering Lowest Price & Highest Margin • Shipping & Locational advantages provide lowest price per LT • Higher Recycling Operating Margin • WOR: 5.36% • NUE: 4.85% • CMC: 2.36% • SCHN: .64% • + CAGR of 5-Year OM Growth • Aggressive acquisition strategy • Own 7 deep water ports • WOR has improved Op. Margin by +.325% YoY $ 458.38 $ 417.16 $ 416.00 Slides that directly compare and contrast your two companies in relations to opportunities and trends will better build your case in why your valuations are appropriate

  18. Chinese Steel Market Expansion • Three-fold increase in Chinese steel market • Projected Steel Production Growth • World 3.09% • Asia 7.28% • Asia projected to dominated 70% of world steel production • Increased demand of 5.22% Do not forget that the analysis from last semester in many cases will still be relevant. If your industry was positive in the fall, it should be anticiapted (excluding major news or changes that may occur) that your trends would positively affect both companies in some fashion Projections created from Weighting of Continent contribution to SCHN revenue & Production rates

  19. Decline in Chinese Steel Market – Indirect Demand Decline in SCHN • Demand +5%, though declining • Supply over Demand Gap • Inventory rose 28.4% higher than last year’s average • Increased Utilization rates =Chinese Independence • Adjusting for Chinese & Developing Asian economies independence, project 2012 revenue growth at 3.14%. If there is a specific trend that affects one of your companies primarily (in this case SCHN significantly - ) then you should apply the analysis as the basis to your valuation and your investment thesis

  20. Valuation (Note for this sample numbers are fictional) + 16.26% WACC: 9.72% Growth Rate: 2.0% Discount Rate: 3.0% Your valuation will use different methods but should include multiples analysis with DCF for both. The assumptions that created this end product have been explained throughout the presentation. Back up slides should include in depth breakdown of cash flows etc. - 13.43% WACC: 9.72% Growth Rate: 2.0% Discount Rate: 3.0%

  21. Risks [Sample using Nuance Communications] To complete the risks in the presentation you will learn to create a football field diagram measuring the effects of various scenarios and if certain risks are expected to occur. This concept in investment banking is one of the most important skills to know

  22. Fragile Industry; Worthington Strong Remember to conclude the presentation similar to the way it opened. A structure for presentations is: Tell me what your conclusion is Tell me what you are going to tell me Tell me what you wanted to tell me Conclude and recap what you told me • Worthington delivers lowest price point and highest operating margin in manufacturing industry • Strategic acquisitions and vertical integration have positioned industry well to satisfy yet also rely on East Asian consumers • Industry and SCHN limited by Chinese dominance and independence, along with a supply gap leading to market dilution

  23. Meeting Schedule IM Update • Overview of Investment Management changes, process and perspectives IR Presentation Info • Explanation of presentation template/sample & changes from past year Club Schedule & WS Trip • Overview of semester plan & Info for Trip • Quick tips on professionalism and recruiting/internships in the spring semester Interview Tips

  24. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  25. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  26. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  27. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  28. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  29. Spring 2012 Calendar (IR Team Deliverables – 11 Weeks)

  30. Wall Street Trip • Typically the first Friday in April • Arrive in NYC 10:30am • Lunch with alumnus & Dean Freeman • Site Visit I: 12:30-2:30pm • Site Visit II: 2:30-4:40pm • Arrive in Boston 10:00pm Opportunity to meet connections & alumni on Wall Street – Terrific for underclassmen Past Site Visits:

  31. Meeting Schedule IM Update • Overview of Investment Management changes, process and perspectives IR Presentation Info • Explanation of presentation template/sample & changes from past year Club Schedule & WS Trip • Overview of semester plan & Info for Trip • Quick tips on professionalism and recruiting/internships in the spring semester Interview Tips

  32. Recruiting Tips Spring 2013 Freshmen • Create a resume. Use your experiences from college and begin thinking of ways to improve experience Sophomores • If interested in Finance in NYC, reach out to older members of club for alumni names & connections Juniors • See interview tips. Follow up with alumni and your applications. Look to FCC for newly posted jobs • Give advice to underclassmen in club. Introduce alumni who aided you to younger members interested Seniors

  33. Interview Tips (Sophomores/Juniors) Spring 2013 What are the 2 most important questions? • Do not overlook the first 5 minutes of your interview. Being asked “how are you” should be prepared for. How do I differentiate myself? • Pre-interview, write down the 2-3 points that you want the interviewer to walk away with. Highlight these Technical Questions? • Pre-interview reach out to an alumnus/upper classmen in the industry. For IB attend SA Forum 2/10 • Prepare questions, follow up after interview. Try to make the interview conversational Wrapping Up?

  34. Senior Analyst Forum (others interested can attend): Sunday February 10 @ 10:30am in CAS 114B Next General Meeting: Wednesday February 13 @ 5pm in SAR 101 If you want to join a team please come up to the podium so that we can put you in touch with the senior analysts of the sector of your choice

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