Tuesday, September 27, 2016

Mike Klenn of Timpani Capital Management visited the AIM program

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Timpani’s Mike Klenn, AIM Alumnus, Presented to the 2017 AIM Students on Monday, September 23, 2016

  
Mike Klenn of Timpani Capital Management visited the AIM program today. Timpani is a Milwaukee-based investment manager focused on small cap growth investing.  Information about Timpani can be found at: http://www.timpanicapital.com/.

Bill Walker, Dr.Krause, and Mike Klenn

Mike Klenn, CFA, is a Senior Analyst at Timpani. Prior to joining Timpani, he was a member of the Applied Investment Management Program at Marquette University running a portion of the endowment. He also interned at Timpani during his senior year of college. He received his B.S.B.A. in Finance from Marquette University and has earned the right to use the CFA designation.

Image result for timpani investmentDr. Krause, AIM program director said, “We always enjoy Mike’s visit. This year he talked about Timpani’s investment philosophy. They believe that earnings drive stock price performance. By combining fundamental research with an analysis of estimate revisions, they believe they can identify and exploit the perception gap that exists between a company's business strength and the market's expectation of that strength.”

Mike Klenn, AIM alumnus
He continued, “They add exposure to stocks where growth is being underestimated, or where there is a positive perception gap and we reduce exposure to stocks where growth is being overestimated, or where there is a negative perception gap. Perception gaps exist because the market is slow to react to incremental, relevant changes in a company’s fundamentals.”
 
Later this semester, AIM students will likely again conduct a ‘road trip’ to Timpani where they will pick stocks to the firm’s investment team (Brandon Nelson, Ryan Isherwood, and Mike Klenn).






Monday, September 26, 2016

Another Set of AIM Students in the Class of 2017 Delivered Equity Presentations on Friday, September 23, 2016

On Friday, 4 Students in the AIM Class of 2017 Pitched the Fourth Set of Stocks During the Fall Semester
   
Nick Christman,
AIM and Army ROTC programs
Over 30 students in the AIM Room attended the fourth set of equity pitches delivered by the Class of 2017 in the AIM Room on Friday. The four AIM student presentations also were viewed on-line via a webcast by more than 10 alumni and family members across North America.





The equity write-ups can be found at:

Anthony DiSanto, Joe Kennedy, Nick Christman, and Steve Hoffmann

Dr. David Krause, AIM program director said, "We had three international and one domestic stock pitch and each were well delivered. The AIM students work hard on their analysis and models - and there write-ups continue to improve. I'm happy with all of the presentations this semester."

These presentations also included the opportunity for real-time micro-blogging (via Twitter). During the AIM student equity pitches on Friday more than 10 questions and comments were posted at #AIMpitch at the @MarquetteAIM Twitter site or via the instant messaging on the webcast.
Krause stated, "The presenting students have the opportunity to respond to the questions over the weekend before the students vote on whether or not to add the stocks they pitched. The student equity pitches have always been one of the main highlights of the AIM program and the new class did a solid job. The opportunity for students to actively manage domestic and international equity portfolios has been an important part of Marquette AIM program’s experiential learning."







Sunday, September 25, 2016

An AIM Equity Update on NTT DOCOMO, Inc. (DCM) by Anthony DiSanto. "Their new “+d” business hopefully will earn them an A!"

NTT DOCOMO, Inc. (DCM, $24.71): 
“Did DCM peak, or is it only the beginning to something bigger?” 
by: Anthony DiSanto, AIM Student at Marquette University

Image result for ntt docomo logo
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

·         NTT Docomo, Inc. (NYSE: DCM) mainly provides telecommunication services in Japan, but also operates in the Smart Life Business, and in a variety of other businesses.
  •  In June of 2016, Kazuhiro Yoshizawa took the position of President & CEO of NTT Docomo (“DCM”). His focus is on creating and evolving services, expanding partnerships, and reinforcing its telecommunications business.
  •  DCM continues to increase its number of subscribers year over year. Currently its customer base is 70,964 thousand, which is 43.6% of the domestic market. In addition, ARPU has begun to increase, from ¥4,100 in 2014 to ¥4,170 in 2015 (per month per user).
  • DCM began to rollout “+d”, which is its partnership with other entities to grow value for its D account members. Members who do not use the telecommunication portion of DCM can accumulate points through its other services and use those in dmarket.
  • DCM is working to increase its smart-life and other businesses to account for ¥100.0 billion or more of its operating income by FY2017. DCM is already on track to do ¥120 billion in operating income for FY2016.


Key Points

Since repositioning itself in FY2014 after witnessing a year-on-year decline in income, future growth has become DCM’s focus. This is explained through its attention to cost efficiencies. In 2015 DCM cut selling expenses and network-related expenses leading to an overall operating expense reduction of ¥0.3 billion.

DCM has also been focusing heavily on expanding its Smart-life and Other business segments, understanding that it will become increasingly difficult to expand through telecommunications. Thus, it is looking to create a membership-focused business for those who do not have NTT Docomo subscriptions. This is accomplished through “+d” in which DCM teams up with other entities, which will drive its Smart-life and Other business profits.

DCM is currently working on software through which it hopes to connect the world. In 2012, DCM released “Hanashite Hon’yaku” which translates words through voice recognition and that lead to “Jspeak” overseas in 2014. DCM established Mirai Translate, Inc. in 2014 to capitalize on areas previously untapped to it, such as tourism and other translation services. It hopes to establish technology that will perform real-time translation services to connect the world.

With the current devaluation of the firm after the announcement of stock repurchases, the price plummeted. However, after posting positive earnings and with the way DCM is performing quarter to quarter, it should be trending higher.

What has the stock done lately?

Since July 6, 2016, after NTT Docomo announced its share repurchase program of ¥500 billion, the stock has fallen 12.75%. The stock plummeted again at the beginning of August when it announced more share repurchases. Surprisingly after posting positive results in its annual report on September 9, 2016, the stock experienced a slight increase, before settling at $24.71 which is where it currently stands.

Past Year Performance: Over the past year, DCM has increased 37.66%, although mention was made it has gone through a price correction since July 6, 2016. In their earnings call they spoke about their new “share packs” targeting the families that used less than one gigabyte of data. This has led to an increase in ARPU, as mentioned above. Thus, the 37.66% increase is well deserved.


Source: FactSet
My Takeaway

Although the stock has been going through a volatile period, I believe that the refocusing of the company puts it at a state for future growth. CEO Kazuhiro Yoshizawa focus on turning the company into a membership focused firm is intelligent, especially since telecommunications is becoming harder to squeeze profit from. Also, his installment of new share-packages and billing plans that target families are starting to bear fruit. Thus, I believe that DCM will continue to increase profit going forward, especially with their new “+d” business. NTT Docomo has already surpassed their future goals in expanding their non-telecommunication operating revenue and is on track to continue its growth. Thus, I believe DCM has opportunity to change its current trend and begin to increase in share price again.


Source: FactSet





Saturday, September 24, 2016

Three more sets of speakers will visit the AIM Program next week

The parade of prominent money managers to visit the AIM program continues

Dr. David Krause, AIM program director announced the next set of guests who will be visiting the Marquette's Applied Investment Management program. 

The AIM program continues to bring in leading portfolio managers and analysts from the leading Milwaukee-area investment firms. During the week of September 26th the parade continues:

  • Monday: Michael Klenn, Timpani Capital
  • Wednesday: Chuck Severson and Corbin Weyer of RW Baird
  • Friday: Disruptive technology presentation by Bob Organ and Mike Stankovsky of Northwestern Mutual


Check out the AIM blog to read about all of the guests that have visited the AIM program already this semester. Krause said, "We are thankful that all of our guests take the time out of their busy schedules to come to campus and present to our students. These interactions are a vital feature of the AIM program - and truly honors the 'applied' element of the program."  




Friday, September 23, 2016

Joe Frohna of 1492 Capital Management was the guest speaker in the AIM class on Friday, September 23rd

The AIM students learned about thematic investing

Joe Frohna of 1492 Capital Management
Joe Frohna, 1492 Capital Management’s founding principal and portfolio manager of the Growth Strategies and Core Alpha Strategy funds, was the guest speaker in the AIM program on Friday.

Mr. Frohna, seasoned manager of public and private funds for institutional and individual investors  since 1997, founded 1492 Capital Management. This Milwaukee-based investment firm focuses on finding small cap companies with superior growth characteristics. As he told the students, 1492 deploys a thematic approach in an attempt to leverage their fundamental research to identify key companies that will be participating in a particular high growth area of the economy.

Dr. Krause stated, “We enjoyed talking about emerging investment themes with Mr. Frohna. The students found his discussion about emerging companies and technologies to be fascinating. I know that they will begin looking at their sectors differently following Joe’s talk.”


Nick Christman, Joe Frohna and Dr. David Krause discuss IHS Markit
an international financial services firm
Mr. Frohna also talked to the students about micro-cap equity investing.  He discussed his approach to screening and identifying attractive opportunities. In 1997 he became the portfolio manager of the nationally recognized First American Small Cap Growth Opportunities Fund (formerly the Firstar Small Cap Growth and Firstar Microcap Fund). His experiences and thoughts about how to evaluate stocks in the micro-cap space were appreciated by the AIM students.

Thursday, September 22, 2016

AIM students were treated to a presentation by Bill Priebe of Henderson Geneva Asset Management this week

Mr. Bill Priebe of Henderson Geneva Asset Management was a special guest on Wednesday, September 21st in the AIM program

Mr. Bill Priebe visited
Marquette's AIM program
This week the AIM students at Marquette University were privileged to host veteran money manager, Bill Priebe, the founder of Geneva Capital Management.

In October 2014, Henderson Global, a London-based asset manager,  acquired Geneva Capital Management, a US growth equity manager founded in 1987. Geneva is known for specializing in high quality growth equity strategies. The acquisition was an important strategic milestone in the development of Henderson’s North American business as it added a seasoned US equity team with a strong, proven track record of small- and mid-cap equity investing. 

Tile_tile-logo-hgeneva2Henderson through the acquisition expanded its capabilities and extended its US institutional client base. Mr. Priebe, CFA, co-founded Geneva Capital Management in 1987 with Amy Croen – and he continues to serve an important role along with the other portfolio managers at Henderson Geneva Capital Management. 

Mr. Priebe is a member of the funds' Investment Strategy Group that conducts high quality fundamental research and is responsible for the management and oversight of the Henderson Geneva growth equity portfolios. Before founding Geneva, Mr. Priebe worked for First Wisconsin Trust Company. He graduated from Northern Illinois University where he also earned his Master’s in Finance - he later earned an MBA from the University of Chicago.


Bill Priebe, Dr. Krause, and Sarah Hillegass
discussed investment trends
Mr. Priebe briefly discussed the philosophy, strategy, and process behind the Henderson Geneva US Mid Cap Growth Fund and gave examples of stocks that met their investment criteria. Dr. David Krause, AIM program director said, “It was marvelous to have Mr. Priebe join us again. You can tell that he is a former educator as his class material is well organized and he was able to connect with the students through his presentation and real world examples. He provided valuable micro and macro-economic insights – and engaged the AIM students in investment-related discussions during and after class.”


You can join the AIM Program Student Equity Presentations in person, online or via Twitter on Friday, September 23rd at 3:00 pm CST


The AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. Watch the live presentations by the students in the AIM Class of 2017 (see webcast link below).



The students prepare and distribute a professional equity write-up (note: every AIM write-up since the inception of the program in 2005 is archived here). 

This week’s equity write-ups can be found at:

The students are responsible for making a five-minute pitch before their peers, faculty and any alumni or investment professional in attendance.

Following the student’s pitch the floor is opened for questions and answers for about ten minutes. This has been highly instructive as the students must be prepared to defend their investment recommendation and answer questions in an extemporaneous manner.

How to comment using Twitter:
  • Go to the MarquetteAIM Twitter account (you can use Search Twitter on your site) and click Follow
  • During AIM presentations, go to #AIMpitch and follow the tweets (discussion) on Twitter (it will also be appearing on the Rise Display Board in the AIM Room and on your smartphone)
  • Tweet your comments and questions during the AIM equity pitches
    • Follow the rules of etiquette for using Twitter during AIM pitches
    • Use the hashtag #AIMpitch to start each tweet
    • Use $TICKER (note: this is called a cashtag and it be should the unique ticker/symbol for the stock that is being presented, ex: $TSLA)
    • Keep you comment short because each tweet is limited to a maximum of 140 characters
    • Example for Tweeting on a student’s Tesla equity pitch (note: the ticker for Tesla is TSLA):
      •  #AIMpitch $TSLA How do lower gas prices impact demand for electric cars?





Wednesday, September 21, 2016

Current AIM Holding: ScanSource (SCSC) by Andy Reed. "For Investors Seeking Organic Growth"

ScanSource, Inc. (SCSC, $34.88): Investors Craving Organic

By: Andy Reed, AIM Student at Marquette University

Image result for ScanSource, Inc. logo
 Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

ScanSource, Inc. (NASDAQ: SCSC) is a distributor of specialized technology hardware, including communications, security and point-of-sale/barcode products. ScanSource sells its products through partner vendors, such as Zebra and Honeywell. The company operates in two segments, Worldwide Barcode and Security and Worldwide Communications and Services segments, representing 67% and 33% of revenue, respectively.
SCSC reported FY financial results on August 29, with revenue and EPS falling short of street and company estimates.
Fourth quarter gross margins faltered, falling to 9.4%, a 60 bp miss on guidance, coming from increased costs and an unfavorable product mix in the company’s Worldwide Communications & Services segment.
In October 2015, management assembled a “search committee” to identify potential avenues for building a recurring revenue business within the company. Announced on the Q4 earnings call, the company acquired Intelisys, the market leader in the telecom and cloud services market.
While the company achieved 4% y/y increase in FY EPS at $2.71, the bulk of the growth was driven by 1H strength, and should make for tough compares moving into FY2017. With the stock taking a shellacking, faltering ~20% on earnings, I still see numerous headwinds for the company moving forward. Due to an uncertain market landscape and a growing reliance on acquisitions, investors will likely continue to watch from the sidelines until further notice.

Key Points: ScanSource reported disappointing fourth quarter sales of $877.5MM, vs street consensus of $911.1MM. Most of the weakness came from the company’s inability to secure deals within its barcode equipment business. After achieving a solid organic growth profile in recent history, the previous two quarters have proven to be tough from an organic growth standpoint. Fiscal third and fourth quarters saw organic growth slide to (1%) and (8%) on a y/y basis. In addition, management guided to another quarter of negative organic growth for the current quarter, which assumes continued weakness in both of its segments.

As organic growth appears to be a mixed bag, at best, moving forward, the company has more recently focused on acquisitions to fuel near-term growth. ScanSource’s acquisition of KBZ Communications in early 2015, which helped expand the company’s videoconferencing capabilities, has helped drive top-line results. The company expects near-term financial pressure from the integration of newly acquired Intelisys, but with the growing popularity and expectance of lifetime services, they are hopeful it can provide a much needed lift in the long term. However, leaning on these acquisitions to fuel growth could prove to be a risky bet, especially as KBZ prepares for a critical bid process for further government business.

The company’s barcode business suffered setbacks during the quarter, as retailers began to delay their bigger spending projects. Driving the company-level revenue disappointment, the barcode networking segment was dragged down by smaller deals and fewer wins in North America within its key vendor space. With a generally tough brick-and-mortar retail environment, its barcode and point-of-sale technologies could potentially see a lift from retailers more aggressively managing the supply chain. As such, management outlined its strengthening expectations for the first half of the current fiscal year, as larger deals could be achieved between ScanSource and its vendors.

What has the stock done lately?
The two largest shareholders, Fidelity and Blackrock, trimmed their positions in the stock after the most recent earnings call. A good indication of recent volatility, the Bollinger Bands on the company’s publicly traded equity have widened significantly since the full-year earnings announcement. The stock currently trades at $34.88 as of market close on 9/8, hitting a three month low, but still significantly above its CY16 trough of $28.34.

Past Year Performance:
The past twelve months have been somewhat of a bumpy ride for investors, with the stock approaching a five year high before a disappointing earnings announcement in August. The stock also hit a three year low on January 15, 2016. Overall return for the stock since the beginning of the company’s fiscal year is approximately flat. SCSC completed a $120 million repurchase plan during the quarter and approved a three-year plan for another $120 million repurchase over the next three years. The company’s valuation appears to be quite fair, trading at 7.8x EBITDA, in line with a peer average of 7.7x.
  


  Source: FactSet


My Takeaway

As legacy markets have slowed for ScanSource, the next twelve months will be crucial for investor perception. With nascent geographies, such as Brazil, doing much of the legwork for the company’s business segments, it will be important for the company’s North America business to regain some of its luster. Organic growth will be paramount in regaining investor confidence. However, the company’s footprint in the young 3D printing industry could provide investors with incentive to jump back on the boat, but will almost certainly require a wait-and-see approach after last month’s sell-off.

 Source: FactSet