| APM Alumni Updates:
Alumni, send us your updates. I've heard from many of you that this is your favorite part of the newsletter. Everyone wants to know what you've been up to - jobs, weddings, births, any type of significant event you'd like to share!
Lili Chen (APM F09) has accepted a position as an equity analyst at Laifer Capital.
Allie Atwood (APM F07) has been promoted to associate at Stephens Inc in Dallas.
Ben Fraser (APM F09) has accepted a position as institutional client relations coordinator at Tortoise Capital Advisors in Kansas City.
Derek Dixon (APM F11) has accepted a position as an analyst at Koch Fertilizer in Wichita.
Sean O'Neill (APM S11) has accepted a position with Midwest Energy Solutions in Kansas City.
David Holzman (APM F08) has been promoted to president at Allied Business Group in Kansas City.
Dev vrat Khanna (APM S11) has accepted a position as an investment banking analyst at
Robert W. Baird in Chicago.
James Coder (APM F10) has accepted a position as an analyst at Fidelity Investments in Boston.
Trang Nguyen (APM S12) has accepted a position as a portfolio analyst at Tortoise Capital Advisors in Kansas City.
Matt Farmer (APM S11) has accepted a position as an investment banking analyst at J.P. Morgan in New York.
Thad Sieracki (APM F11) has accepted a strategy analyst position with Sovereign/Santander in Boston.
Jared Nuss
(APM F11) has accepted a position as an analyst with Sabre Holdings in Dallas.
Trevor Nohe (APM S07) has accepted a position as a senior consultant at Deloitte Consulting in Kansas City.
Tyler Enders (APM F10) is now venture associate at EdgeHill Capital Partners in Kansas City.
Aditya Rastogi (APM F11) has passed Level I of the CFA.
Chris Billinger (APM S12) has accepted a position with Black&Veatch in Kansas City.
Mike Yeggy (APM F08) has relocated to Kansas City and accepted a position with Colliers International, a commercial real estate investment group.
Kai Oliver Thiele (APM S11) is now with Hanseatic Consulting in Hamburg, Germany.
Eric Gephart (APM S03) with First Class Moving Systems is helping the RNC move in. Eric made national news as the Project Manager on the move. See http://tbo.com/ar/444289/.
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APM golf tournament swings into action for another year
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APM supporters enjoy a day of fun at the annual tournament
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The 8th Annual APM Golf Tournament is scheduled for noon Friday, Sept. 14th at the Lawrence Country Club. Registrations are now open for individuals and teams, though space is limited. You can find the registration form on our website. Please send any questions or registration requests to apm@ku.edu or call (785) 864-2191. A few sponsorship opportunities are still available, and we are excited to note that all funds raised by the tournament this year will be donated to the new KU School of Business building fund.
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Bandwidth capacity: The dumb problem of smartphones
by Group 4: Terrance Frierson, Trang Nguyen, Hatem Shashaa and Denton Zeeman
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Matt Michaelis
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Matt Michaelis (APM F94) visited the APM class to talk about the current challenges in the wireless industry and his investment strategies. Matt holds a bachelor's degree in business administration from the University of Kansas. He started his career as an investment banker with Salomon Brothers and then worked for 15 years as an M&A advisor in the telecom industry at Jeffrey Williams and Co. and Greenhill & Co.
In October 2010, Michaelis established his own private equity company, Perla Capital Partners. The company is focused on small companies providing support services and equipment in the wireless telecommunications industry with a history of positive cash flow and attractive growth prospects. Perla Capital Partners currently holds two service companies in its portfolio: Steimel Communications and Red Wing Enterprises.
Michaelis discussed the wireless communication industry and the spectrum capacity issues it faces. Driving the enormous growth in wireless capacity (bandwidth) demand are two trends. First, smartphones are expected to increase their market penetration in the U.S. from 50 percent to 70 percent in 2016, while also continuing to utilize 35 times more data traffic than a normal feature phone. This will require more capacity from phone carriers. Second, the increase in technology will spur the usage of high definition videos and other applications that will further increase the data traffic needs of wireless networks.
There are four possible solutions to this problem: carriers must add capacity or spectrum, improve their technology by increasing the speed, increase the number of wireless base stations or find pricing models that encourage efficient data usage. Phone carriers are in a difficult situation in which they face increasing data traffic demands while their revenue stays flat. However, this increase in capacity demand creates more opportunities for companies providing services to the carriers such as tower companies that rent out tower spaces to carriers. The tower business is very attractive because of its stable revenue stream, low risk profile (since the risk is borne by the large carriers) and high margins of approximately 25 percent. Still the tower companies are expensive trading at a current multiple of 25 times cash flow.
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Riding the rails: Kansas City Southern comes 'round the bend
by Group 5: Andrew Bernard, Chris Billinger, Boone Bradley, Ben Gaydess-Hodgins and Chad Kyzar
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Michael Haverty
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Michael R. Haverty, Executive Chairman of Kansas City Southern (NYSE: KSU) visited the APM class to discuss his business philosophy, his life experiences and how Kansas City Southern has thrived against much larger competitors in the railroad industry. Haverty credits his success to three things: "Determination, Determination, Determination." He began his career in the railroad industry at the age of 19 working as a brakeman. He continued working for the railroad during the summers throughout college and he accepted a junior management position with the Missouri Pacific Railroad following his graduation.
Haverty describes his decision making process as using "logic and common sense." He exemplified this by forming a partnership with trucking company J.B. Hunt (NASDAQ: JBHT) to haul J.B. Hunt trailers via long distance rail. This was the first time a railroad and trucking company collaborated. Today this partnership is worth $1 billion.
During a time of major railroad mergers in 1993, Haverty was hired to run Kansas City Southern. Haverty from then on undertook many mergers and acquisitions to slowly move KCS into Mexico through the Laredo Gateway. Even though at the time this was considered a foolish move by many, KCS became the exclusive carrier from the Lazaro Cardenas port to connect the Gulf of Mexico and Pacific Ocean to the U.S. border and intermodal rail traffic has become the company's fastest growing segment.
When Haverty spoke with the class, Kansas City Southern's stock had just reached its all-time high and carried our APM position up to 7 percent of the portfolio
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Drilling for value among African oil E&Ps, a UK perspective
By Group 1: Matthew Abraham, Cory Gleason, Sam Gurney, Matt Powell and Kyle Quackenbush
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Dragan Trajkov
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Dragan Trajkov (APM S04), a research analyst specializing in African oil and gas companies for Renaissance Capital, called in from London to share his insights on Kosmos Energy (NYSE: KOS), an offshore E&P company operating in Ghana. Dragan started by reviewing the basics of the oil industry with APM before sharing more in-depth knowledge on parts of the business from a professional analyst perspective and the challenges of valuation in the developing world.
Dragan explained that oil companies are cash flow intensive operations, so valuing mature operations through the lens of a discounted cash flow model or cash flow multiple makes sense. The risks associated with exploratory assets justify valuation via comparable asset sales. Kosmos also suffers from risks inherit in dealing with African countries, so he touched on topics like piracy on the seas, political risks and how the upcoming elections in Ghana could influence the workings of the company. By and large such risks justify a larger margin of safety before investing, but outside of government seizure of assets they present a fairly minor risk to operations. Results will largely be determined by the success of typical E&P operations.
After discussing Kosmos, Dragan took questions from the class about more general business ideas and the process of being an equity research analyst. He spoke about different valuation metrics, how to begin to understand a new business and the day to day operations of an analyst. Dragan also explained the importance of research analysts and how they don't just "cost a company money," but provide essential insights and build client relationships.
Dragan Trajkov studied Electrical Engineering during his undergraduate program before becoming an APM and MBA alumnus at the University of Kansas. He is originally from Macedonia and now lives in London with his family in between trips to Africa for work.
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Islands in midstream: Inergy laying the pipeline for a natural gas rebound
by Group 2: David Hutchins, Dan LaGree, John Myers, Austin Trees and Kyle Tushaus
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John Sherman, Cathy Shenoy, Vince Grisell and Al Simmons
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John Sherman, founder and CEO of Inergy, L.P. (NYSE: NRGY), visited APM to discuss Inergy's current operations and future exploration opportunities. Inergy, headquartered in Kansas City, Mo., is the nation's fourth largest retail propane operator, serving customers in 33 states from 340 locations. [Editor's Note: Inergy's propane operations have been sold to Suburban Propane Partners LP (NYSE: SPH) since Sherman visited] Along with their propane engagement, Inergy Midstream, L.P. (NYSE: NRGM) has operations which consist of two strategically positioned natural gas storage and transportation sites located outside of New York and Houston.
John has worked in the propane industry for more than 25 years, gaining most of his experience in propane distribution and transportation. John noted the importance of Inergy's strategic planning as the company prepares for a potential expansion in to the natural gas industry. He feels there will be an industry turnaround in the coming years. The abundant natural gas supply has caused prices to reach decade lows and alter operational activities for many energy companies in the U.S. With regard to Inergy's future, plans for the midstream operations include the expansion or construction of Watkins Glen Natural Gas Liquids, the MARC I Pipeline and North/South operations. These future capacity additions should deliver company growth and steady distribution payouts to benefit Inergy and unitholders in the years to come. While Inergy Midstream is a relatively new company, they have established themselves as a significant and well-positioned independent natural gas storage provider in the northeast United States.
Accompanying Sherman for the evening was current APM broker and KU business alumnus, Al Simmons, as well as Inergy's corporate finance manager, Vince Grisell, CFA, who is also a KU business alumnus. The alumni presence was a continuing reminder of the importance of their support and their vital role in the APM program's success.
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APM portfolio performance and rebalancing
For the second quarter, 2012, the APM portfolio managed to slightly outperform our tracking indices, as detailed below.
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Current
Quarter
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Last 4
Quarters
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Last 3
Years
| | SP500 | -2.8 |
| 5.4 | 57.6 | | SP600 | -3.6 |
| 1.4 | 71.7 | | NASDAQ | -4.8 |
| 7.1 | 65.0 | | APM | -2.7 |
| -3.6 | 24.4 |
During the quarter, we traded fairly actively, looking to reduce our exposure to equities and allow the next few quarters to rebalance the portfolio and bring in some new names. Thus, we sold our stakes in A-Power Energy Generation Systems (OTC: APWR), China Green Holdings (HK: 0904), Visa (NYSE: V), Tortoise Energy Capital (NYSE: TYY), Paychex (NASDAQ: PAYX), Kohlberg Kravis Roberts & Co (NYSE: KKR), Joy Global (NYSE: JOY), Google (NASDAQ: GOOG), Elron Electronics (TA: ELRN), BlackRock (NYSE: BLK), and Allegiant Travel Company (NASDAQ: ALGT). Many of these names had reached close to our fair value estimate or had significant sector and learning opportunity overlap with other names in the portfolio and were thus deemed to be sells. We expanded our stake in Tortoise Power and Energy Infrastructure (NYSE: TPZ) during the quarter and established a sizable new position in the ADR shares of downtrodden steel producer Arcelor Mittal (NYSE: MT). With our ample cash stake we are looking to diversify the portfolio and refocus our energies on alpha-generating names with clear learning opportunities. We will be reaching out to APM alumnus to discuss new ideas, and if you have any names you'd like to see in the portfolio - especially if you would be willing to be an APM mentor for the name or interact with the class - please be in touch. Expect us to highlight new investment ideas over the next few quarters as we reallocate the portfolio. |
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