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Information Technology Finance 724/824 SIM Class

Information Technology Finance 724/824 SIM Class. Christopher Moran Suresh Ramasubramanian Sean Ramsey. Agenda. Agenda. Sector Overview Business Analysis Economic Analysis Financial Evaluation Valuation Recommendation. SIM Portfolio Composition. SIM Portfolio Composition.

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Information Technology Finance 724/824 SIM Class

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  1. Information TechnologyFinance 724/824SIM Class Christopher Moran Suresh Ramasubramanian Sean Ramsey

  2. Agenda Agenda • Sector Overview • Business Analysis • Economic Analysis • Financial Evaluation • Valuation • Recommendation

  3. SIM Portfolio Composition SIM Portfolio Composition

  4. SIM Weightings Relative S&P 500 SIM Weighting Relative S&P

  5. SIM Weightings Relative S&P 500 IT Historical Weighting

  6. IT Summary

  7. Historical Earnings

  8. SIM IT Holdings

  9. Business Analysis • Diverse sector with a focus on computer technology. • Innovation is a key driver for success within the sector. • High R&D costs are required to generate future growth. • Industry is very cyclical. Often seen to lead the economy out of down cycles.

  10. Business Analysis (cont.) • High Barriers to Entry. • Corporate spending may have slowed in the face of current economic conditions. As the economy picks up we feel corporate IT spending will follow. • Substitution is not an issue, continued growth in IT will depend on innovation and new market penetration.

  11. Business Cycle Analysis Barrowed from Merrill Lynch

  12. Why is it still “Growth” time?

  13. Why is it still “Growth” time?

  14. Why is it still “Growth” time?

  15. Economic Analysis • Lagging Indicators • Leading Indicators

  16. Economic Analysis • Exports: Computers • GDP • Durable Goods Orders Lagging Indicators

  17. Export: Computers vs. IT

  18. Export: Computers vs. IT

  19. GDP & Durable Goods vs. IT

  20. Economic Analysis • Exports: Computers • GDP • Durable Goods Orders Lagging Indicators Leading Indicators • Velocity of Money Supply • Disposable Income

  21. Velocity of Money vs. IT

  22. What is the Velocity of Money? The velocity of money is the average frequency with which a unit of money is spent in a specific period of time. Velocity associates the amount of economic activity associated with a give money supply. Where: VT = the velocity of money for all transactions nT = the nominal value of aggregate transactions M = the total amount of money in circulation (Money Supply)

  23. Disposable Income vs. IT

  24. Price/ Earnings - Forward Absolute Relative to S&P 500

  25. Price/ Earnings - Trailing Absolute Relative to S&P 500 Relative to S&P 500

  26. Price / Book Absolute Relative to S&P 500 Relative to S&P 500

  27. Price / Sales Absolute Relative to S&P 500 Relative to S&P 500

  28. Price / Cash Flow Absolute Relative to S&P 500 Relative to S&P 500

  29. Net Profit Margin Absolute Relative to S&P 500 Relative to S&P 500

  30. Return on Equity Absolute Relative to S&P 500 Relative to S&P 500

  31. Valuation Analysis Summary

  32. Reason to Invest in Info Tech • Of the 13 industries with Rising Relative strength in S&P 500, 6 are in the Info Tech Sector. On March 24, S&P Equity Strategy upgraded the technology sector to overweight from market weight. • Above average balance sheet strength and potential to continue outgrowing the overall economy. • Industry leaders in this Sector trade predominantly in the U.S Stock market. • Sector is less cyclical than it was earlier this decade. Many tech companies’ offerings are essential to operate and grow businesses, and they can often help firms save money and be more efficient.

  33. Recommendation • We recommend maintaining the current SIM IT weight within the portfolio. • Although industries within the sector can be dependent on consumer spending patterns, this should not be enough to negatively impact the entire sector. • There is potential upside from funds designated to IT spending from US stimulus plan.

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