Saturday, September 30, 2017

The 4th Set of Marquette AIM Equity Fund pitches for the Class of 2018 were presented on Friday, September 29, 2017 in the AIM Room

AIM Students Pitch Four Common Stocks 

This past week, the 4th set of stock recommendations were presented by students in the AIM Class of 2018.  The pitches were presented in the College of Business Administration's AIM Room and over 30 students were in attendance or joined via web.
Mike Dennison, Alex Czachor, Kevin Blank, and Derek Grifka
Kevin Blank presented ABB

This week’s equity write-ups can be found here.

Derek Grifka pitched James Hardie Industries

Michael Dennison is bullish on Marine Harvest

Students in the AIM program manage over $2,600,000 of the University's endowment. Balloting will take place over the weekend to determine which of the stocks listed above will be added to the AIM Funds.

Alex Czachor pitched Cirrus Logic

The AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. 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). 

Thursday, September 28, 2017

Fourth Set of AIM Student Stock Pitches on Friday, September 29, 2017 at 2:30 in the AIM Room

      AIM Class of 2018 Student Equity Presentations - Friday, September 29th

The fourth set of AIM student equity presentations of the fall semester will be on Friday, September 29th, 2017 from 2:30 - 3:30 pm.

AIM Equity Presentations for Friday, September 29, 2017

Company Name
Derek Grifka
International Industrials
James Hardie Industries ADR
Michael Dennison
International Consumer Staples
Marine Harvest ASA ADR
Alex Czachor
Cirrus Logic, Inc.
Kevin Blank
International Industrials
ABB Ltd.

Location:  Marquette University, College of Business Administration - Straz Hall, 1225 W. Wisconsin Avenue, Milwaukee 53233 - in the AIM Research Room 488, 4th Floor
(pdf directions to AIM Room).  

Equity presentations will continue the rest of the semester on Friday afternoons in the AIM Room except for the following dates:
  • Road Show in Chicago on December 1st

Key Investment Banking Guests from Lazard Middle Markets Spoke to the FMA Students and Mr. Germanotta's Investment Banking Class

Marquette's FMA Club and Investment Banking Class Hosted Jim Reilly and Paul Tran of Lazard Middle Markets on September 25, 2017

Paul Tran and Jim Reilly of Lazard in the AIM Room

On September 25th, Marquette’s Investment Banking class was honored to have two guest speakers from Lazard's Middle Market Group: Director, Jim Reilly and Analyst, Paul Tran (a Marquette AIM alumnus in the Class of 2016).  They presented to the FMA Club in the afternoon and assisted in the Investment Banking course that evening.

Mr. Jeffrey S. Germanotta teaches FINA 4081: Investment Banking at Marquette University and works closely with Dr. David Krause and the students in the banking track of the Applied Investment Management (AIM) program. He is working hard to bring the content to life and one of the approaches is to bring outside speakers into the classroom.

Jim Reilly 
of Lazard Middle Markets Group
In talking about the course, he said, “In FINA 4081 we review the common types of transactions that investment bankers work on and the different methods used to value those transactions. Some of these include IPOs, seasoned equity offerings, exchange offers, mergers, hostile tender offers, leverage buyouts, and going private transactions. This course also exposes students to different methods used to value those transactions via applied projects, model building, cases, etc. Additionally, I try to supplement the material with timely outside speakers.”

Image result for paul tran marquette
Paul Tran, AIM Class of 2016, Analyst
Lazard Middle Markets Group

Mr. Germanotta said, “This semester's investment banking class hosted Jim Reilly, Director and Paul Tran, Analyst of Lazard last Monday.  Jim and Paul discussed the various functions within an investment bank and explained the differences between bulge bracket and middle-market investment banks."

He continued, "We also learned about Lazard's focus on financial advisory and asset management activities and their important view of serving as an independent, unbiased advisor.  They concluded their presentation with an actual sell-side case study, consistent Marquette's emphasis on experiential learning.  We are grateful for Lazard's continuing support of Marquette."

Strong turnout of finance students
at the Lazard Information Session at Marquette
The students also had the privilege of walking through a real-life case study of a sell-side advisory transaction, bringing added meaning to our classroom experience.  Jim Reilly and Paul Tran explained their roll in guiding a privately held company though a sale process, which consisted of both strategic and financial buyers.

Wednesday, September 27, 2017

A Current AIM International Fund Holding: CredCredicorp Ltd. (BAP) by Mitchell Beine "Growing risk in this Peruvian firm’s loan portfolio helps explain the recent pullback"

CredCredicorp Ltd. (BAP, $203.92): “Time to Cash in and take these Gains to the Bank”
By: Mitchell Beine, AIM Student at Marquette University

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.

  • Credicorp Ltd. (NYSE: BAP) offers banking, insurance, and investment services to its clients. It is the largest financial services holding company in Peru where it 92% of revenues coming from Peru.
  • The bank derives over 83% of its revenue from its banking segment.
  •  Peru’s economy has slowed, and this has played a role in the deterioration of BAP’s loan portfolio.
  • Credicorp maintains a high P/E valuation, at 14.34x compared to an average of 12.99x for its competitors.
  • The stock has risen almost 30% YTD, and has surpassed the initial target price from when it was pitched.

Key Points: One of the key risks of many Latin American regions is deterioration in asset quality, and BAP has not been immune to this risk.  Non-performing loans have increased each of the past four years, from 2.81% in 2013 to 3.66% in 2016.  In addition, the quality of loans issued by BAP has suffered.  2.77% of the bank’s total loans now qualify as internal overdue loans, up from 2.23% in 2013.  This ratio has also increased each of the past 3 years.  These ratios suggest that BAP’s loan portfolio is diminishing in quality, a significant risk given the increased economic turbulence of the region.

That BAP’s loans have suffered in quality should not come as a complete shock; Peru as a country has been struggling in recent years.  GDP grew at just 1.5% from 2015 to 2016, and has fallen from $201B in 2013 to $192B in 2016.  If Peru’s economy does not pick up, Credicorp will find it challenging to achieve high growth to justify its large P/E valuation.
Management has stressed two things in its outlook for 2017: growth and risk management.  While the bank has experienced significant growth over the past year, they have not been as effective in managing the risk they are taking on.  It is worrisome that BAP has been unable to rein in the growing risk and NPLs.  It is possible that the bank is prioritizing growth over asset quality, and this could have a sharp negative impact on the firm’s share price that has risen by 33% over the past 5 months.

What has the stock done lately?

BAP’s share price increased by about 4% after reporting earnings on August 7th.  Even before this time, the stock has been steadily rising since early April, when the stock hovered around $150.  It consistently climbed to a high of $213.83 in early September, before coming down slightly to its current spot in the low $200s.  It is clear that the market has high expectations for BAP to continue to grow, although the growing risk in their loan portfolio may cause quite a shock for its shareholders in the future.

Past Year Performance: Credicorp has enjoyed a remarkably thorough climb into the $200s.  It is clear that this company is trading at a premium compared to its peers.  The question is whether or not the market has properly priced in the bank’s risk as well as its growth potential.  I believe that the current price is overinflated, and that it reflects minimal risk that is not consistent with the bank’s asset quality trend as well as the geographic region that it resides in.  The bank would have to maintain consistently high growth without a setback, or this stock could come crashing back down to earth.
Source: FactSet 

My Takeaway
Credicorp was pitched to the AIM International Portfolio with a target price of $190.20 on December 2, 2016 with 24% upside.  Over the past year, BAP has surpassed this target and then some, and now sits comfortably above this target at $203.92.  The market may be understating the growing risk in Credicorp’s loan portfolio, and the recent pullback from its high of $213.83 suggests that this stock may be facing a correction in the near future.  As a result, I am recommending that the AIM International Portfolio sell Credicorp as of 9/20/17.

 Source: FactSet

Tuesday, September 26, 2017

The AIM Program Welcomed Derek Urben, CFO & Business Development of Coinigy, a Blockchain Market Intelligence Company

This week the AIM students learned about recent developments in cryptocurrencies and blockchain technology

Derek Urben of Coinigy visited the AIM Program
Derek Urben, CFO & Business Development, of Coinigy (a Milwaukee-based Blockchain Market Intelligence Company) presented to the AIM students in Dr. Krause’s class on Monday, September 25, 2017. He talked about a number of timely issued likely to impact the finance industry within the next few years.

He began by providing some useful quoted from highly regarded economic and financial experts. For instance, “Cryptology represents the future of privacy [and] by implication [it] also represents the future of money, and the future of banking and finance,” per the words of J. Orlin Grabbe, noted economist.

Tom Dietz, Dr. Krause and Derek Urben
According to Dr. Krause, “Derek did a wonderful job taking difficult topics (i.e. blockchain and cryptocurrency) and explaining them clearly. For instance, he helped the AIM students understand blockchain – which is a distributed ledger made up of blocks (i.e. records) that record transactions between two entities in a verifiable manner. He explained that each block is timestamped in order to link it to the previous one to create a chain, where any change requires altering all following blocks as well as network majority consensus.”

Derek Urben, Dr. Joe Wall and Max Mattappillil
Krause continued, “Derek also clearly explained bitcoin which is basically the first implementation of a blockchain to create a decentralized, payment-to-payment system. As a cryptocurrency, it uses a network of nodes to relay transactions. He helped the students understand that Bitcoin is not issued, administered, or wholly owned by any government body or institution – like the Internet.”

He took the students back to January 2009 – and the birth of bitcoin. “In early 2009, the first implementation of a blockchain – Bitcoin – was released as open-source code by Satoshi Nakamoto. While Bitcoin wasn’t the first digital currency, it was the first to include blockchain technology paired with a proof-of-work system and inflation control. Derek then brought the students up to September 2017 and updated them on the current status of the global cryptocurrency market.

Derek Urben, CFO & Business Development
Coinigy, a Blockchain Market Intelligence Company

Monday, September 25, 2017

Bill Kaufmann of Genentech talked to the AIM students about recent advancements in the biotech industry

Bill Kaufmann, Senior Clinical Oncology Specialist, Genentech, joined the AIM students in class on Friday to continue the discussions about disruptive technologies and investment themes

Bill Kaufmann of Genentech speaking in the AIM Room

Dr. David Krause, AIM program director said, “It was a pleasure to have Bill Kaufmann join us for class on Friday. Last year the students had an opportunity to informally meet with him to talk about biotech and explore various investment ideas and I knew we had to get him into the classroom. It’s truly fascinating to hear how disruptive innovations are changing how healthcare is delivered and medicine is practiced. Bill gave numerous examples of the technological changes that are heading our way and how they will transform healthcare – especially the pharma sector.”

Image result for genentech logo
Genentech (headquartered in San Francisco and now a member of the Roche group) has long been considered as the first and top biotech firm on the planet – they are well-known for pioneering recombinant DNA technology. Their research and products have positively affected millions of lives and they continue with amazing breakthrough therapies.

Krause continued, “Genentech is one of best companies to work for – and I know the students found Mr. Kaufmann’s knowledge to be extensive. This was a special opportunity to learn about biotech and the rewards/challenges of this area of disruptive/innovative technology. The discussion we had with Bill about genetics and its current and future impact was special - and I know that it will be an important and probably heated topic of debate over the next several years. Advances in science will test many of our current economic and ethical limits.”

Disruptive technology is a term which refers to an innovation that creates a new product or market and eventually disrupts an existing market and network, displacing established market leading firms, products, and alliances. The advancements in biotech from Genentech and others in the industry will have pronounce implications across the global economy and could be one of the most significant disruptors over the next decade.

Bill Kaufmann, Teresa Janusz and David Krause
Bill Kaufmann, as an oncology specialist, gave numerous examples of how the war on cancer is advancing – providing the students with challenges about how this will impact other industries. While understanding the inner workings of pharma product development and testing are a challenge for most students, Mr. Kaufmann was able to provide valuable background and examples to help them evaluate companies in the biotech space.

Dr. Krause said, “We will be certain to have Bill back each year – this industry is moving at a lightning fast pace and I know we’ll need to stay abreast of all of the latest changes. Today was a splendid example of why we need to bring experts into the AIM program – in order to be relevant, we need to know what is happening around us. Bill did a wonderful job and it was great to see him again.”

Bill Kaufmann is the parent of former AIM student, Jacob Kaufmann. 

Saturday, September 23, 2017

AIM seniors (Grant Runnoe, Max Mattappillil, Tim Milani and Cathy Gong) pitched their equity recommendations this past Friday afternoon in the AIM Room

The 3rd Set of Marquette AIM Equity Fund pitches for the Class of 2018 were presented on Friday, September 22, 2017 in the AIM Room 

This past week, the 3rd set of stock recommendations were presented by students in the AIM Class of 2018.  The pitches were presented in the College of Business Administration's AIM Room and over 45 students were in attendance.

Cathy Gong, Max Mattappillil, Grant Runoe and Tim Milani

In addition to the seniors and juniors regularly in attendance for the Friday afternoon pitches, alumni and parents also viewed the AIM presentations via webcast throughout the afternoon. Mr. Bill Walker and students in the AIM Classes of 2018 and 2019 asked excellent questions of the student-presenters and offered many useful observations and comments. 

Max Mattappillil
Applied Mathematical Economics, Physics and
Applied Investment Management Progam

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

Students in the AIM program manage over $2,600,000 of the University's endowment. Balloting will take place over the weekend to determine which of the stocks listed above will be added to the AIM Funds.

Grant Runnoe, Max Mattappillil, Tim Milani and Cathy Gong were the presenters this week. Following their final buy/sell recommendations, ballots were sent to students in the AIM Class of 2018 to determine which stocks are added to the funds. A 2/3rd affirmative vote is required for a new security to be added to either the AIM Small Cap or International Fund.

Cathy Gong pitched AIA Group Limited
Grant Runnoe pitched Magna International
Tim Milani made his case for adding Alibaba
to the AIM International Fund

The AIM student equity pitches take place each Friday afternoon during the semester – either in the AIM Room or at a local investment company. 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).