Download - UNLOCKING SHAREHOLDER VALUE IN GLOBAL EQUITIES David McBain, Business Development, Altrinsic Global Advisors, LLC.

UNLOCKING SHAREHOLDER VALUE IN GLOBAL EQUITIES

TODAY’S DISCUSSION

I. Brief introduction to Altrinsic Global Advisors

II. The evolving global investment landscape: important developments

• The return of confidence• Three primary and lingering risks• Implications and opportunities

III. Discussion / Q&A

INTRODUCTION TO ALTRINSIC GLOBAL ADVISORS, LLC

Global equity boutique with approximately CAD 13.9 billion in assets under management1 with offices in Greenwich, London, Sydney and Toronto.

Disciplined bottom-up fundamental intrinsic-value process.

All-cap, all market, unconstrained in pursuit of investments.

Ideas typically fall into two categories:

1) Type 1: Higher quality and undervalued businesses with strong and sustainable financial productivity

2) Type 2: More deeply undervalued businesses in which profitability levels will increase from depressed levels

1As of 06/30/13 in Canadian dollars. 2As of 06/30/13; Based upon a representative fully discretionary account with the global mandate, data is presented as supplemental information to a full disclosure presentation found in the appendix.

QUALITY(i.e. ROE, ROIC sustainability)

VALU

E

HIGH

LOW

LOW HIGH

Type 2 companies Type 1 companiesCompanies with cyclical return profiles and/or those that are currently delivering profitability levels below long-term normalized levels.

Higher quality companies with greater and more sustainable return (profitability) profiles.

“Efficient Frontier”

AN “ABSOLUTE VALUE” FOCUSFLEXIBILITY EMBEDDED IN OUR PROCESS

The evolving landscape

THE EVOLVING LANDSCAPE

Asset prices have rerated, but uncertainty remains

Three primary risks are lingering

Implications and opportunities

MAJOR CENTRAL BANKS’ BALANCE SHEETS BALLOON IN SIZE

As of 12/31/12Source: U.S. Federal Reserve (Fed), European Central Bank (ECB), Bank of Japan (BoJ), Bank of England (BoE)

… AS LIQUIDITY BYPASSES THE REAL ECONOMY, FINDING ITS WAY TO THE PATH OF LEAST RESISTANCE …

As of 03/31/13. Measured in local currency terms.Source: GSCI, Bank of America, Global High Yield, MSCI, Barclay’s

SIGNS OF STABILIZATION IN U.S. HOUSING …

As of 03/31/13 Source: CoreLogic

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

Jul-

12

Aug

-12

Sep

-12

Oct

-12

No

v-12

Dec-

12

Italy & Spain 10 Year Bonds

Italy 10Yr Spain 10Yr

EUROPEAN BRIDGES, IN THE FORM OF VARIOUS ACRONYMS, HAVE REDUCED “TAIL RISK”

Financials dominated 2012 performance…“Do whatever it takes” rally…

Company12 month%

return Loans to DepositsTangible

Equity/Assets

Credit Agricole +111% 111% 1.8%

Societe General +89% 138% 3.6%

Unicredit +62% 161% 4.3%

Banco Popolare +56% 227% 5.4%

As of 12/31/12; Source: Bloomberg The data shown above is for the time period 01/01/12- 12/31/12.Source: MSCI

As of 12/31/12; Source: Bloomberg

Although conditions have improved, we see

three primary risk factors worth emphasizing

1994

RISK #1

RISK #1: 1994A POSSIBLE DISRUPTION IN CREDIT MARKETS

Source: Bloomberg

Total Social Financing

“Innovative” lending growth“Traditional” lending growth

RISK #2: CHINA

China’s economy has been supported by credit and financial “innovation.” An unstable foundation.

As of 12/31/12Source: Bloomberg, CEIC

RISK #2: CHINA

Economic developments in China have far reaching implications

• Accounts for 40% of the world’s base metal consumption

• Accounts for 23% of agricultural crop consumption

• Accounts for 20% of non-renewable energy consumption

• Imports are 30% of GDP, an important contributor to the global economy

RISK #3: POLICY

As of 12/31/12Source: IMF

RISK #3: POLICY - INFLATION VS. DEFLATION

Ongoing tug of war between deflationary forces and inflationary policies to persist

Deflation? Inflation?

As of 03/31/13Source: Federal Reserve, U.S. Bureau of Economic Analysis, ISI

As of 06/30/13 Source: Federal Reserve

Implications and opportunities

IMPLICATIONS AND OPPORTUNITIES

• The Saw. A rewarding, but jagged and volatile pathway in asset prices, including equities.

• Greater dislocations at the stock-specific level as macro gives way to micro, as company actions to unlock value have a growing impact on share performance, and as fundamentals reassertthemselves in this evolving landscape.

• New sources of value. “You don’t make money looking in the rearview mirror.”

IMPLICATIONS AND OPPORTUNITIES #1

Expect a jagged or sawtooth trajectory in asset prices as deflationary forces battle with inflationary policies.

Important Differences:

ValuationDebt: Although consumers and countries have too much debt, companies are generally in good conditionPolicy action

Excessive valuation 90x Excessive leverage on company b/s

Several 15-30% Swings During Long-term Decline

Several 15-30% SwingsDuring Long-term Appreciation

As of 03/31/13Source: FactSet, Altrinsic Research

IMPLICATIONS AND OPPORTUNITIES #2WHERE IS THE VALUE?

As of 03/31/13Source: MSCI Barra, FactSet

As of 03/31/13Source: Bloomberg, Datastream, Morgan Stanley Research

IMPLICATIONS AND OPPORTUNITIES #3

Tremendous value to be unleashed via sensible management teams and/or shareholder activism, mergers and acquisitions

As of 12/31/12Source: FactSet, MSCI, Worldscope, Morgan Stanley Research, Nikkei

EXAMPLES: UNLOCKING THE VALUE

• Controversial internet/media company spun out of Time Warner in 2009 with market value of $2.5 billion, having been previously valued at just over $100 billion during 2001 merger of the two companies.

• In 2012, with market cap of $1.8 billion, AOL unlocked $1.1 billion of value via sale of patents, and used proceeds to buy back stock and issue a special dividend worth $500 million to shareholders.

• High-quality regional bank in Kanagawa Prefecture, located just outside of Tokyo.• Offers strong liquidity and capital ratios, improving returns on equity, and management

focused on shareholder value.• During 2012, the company bought back 3% of stock and paid USD142mm (13.3 bln yen) in

dividends, resulting in a total shareholder yield of 5.7% in Japan where prevailing 10-year bonds are yielding a mere 0.73%.

• U.S.-based disability insurance company with significant opportunities to increase pricing and market share.

• Proven management with strong operational discipline and shareholder focus.• A prudent shareholder/capital return story. 0.9x Book value, yielding 2.0% while buying

back approximately 8% in stock, for shareholder yield of 10.4%.

The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

Mitsubishi CorporationBank of YokohamaSumitomo Mitsui Trust HoldingsSMC Suzuki MotorMS&AD Insurance GroupNKSJ Holdings NintendoInpex Japan Exchange GroupKyowa Hakko Kirin

Cheung Kong

Golden Agri Resources

Incitec Pivot

As of 06/30/13, Source: MSCI World (Net) Index. Regional portfolio weights, based upon a representative fully discretionary account with the global mandate, are presented as supplemental information to a full disclosure presentation found in the appendix. The securities identified above are not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell these securities. It should not be assumed that any investment in these securities was, or will be, profitable.

ASIA-PACIFIC: EXISTING HOLDINGS IN JAPAN. VALUE EMERGING IN EMERGING MARKETS

MTN Group

Deutsche Börse SiemensDaimlerAllianzAdidasE.ONHenkel

Carrefour Danone Total

Diageo GlaxoSmithKline Anglo AmericanWillis GroupVodafoneAONBP Standard Chartered

Roche Schlumberger Limited Novartis NestléPhilip Morris Int’lFoster WheelerNoble Corporation

Ericsson

HeinekenCovidien


EUROPE: MULTINATIONAL FRANCHISES PLUS NICHE OPPORTUNITIES. SIGNIFICANTLY UNDERWEIGHT BANKS

Talisman EnergyCanadian Natural ResourcesKinross GoldLundin MiningAgrium

UnumWal-Mart StoresGeneral ElectricTime Warner Apache PepsiCo OracleCisco SystemsPrudential Financial

Newmont Mining Stillwater Mining AOL HealthSouth Marvell Technology GroupThe Mosaic Company Exelon Weight Watchers Int’lTIBCO Software

Juniper Networks Principal Financial Group Torchmark Baker-Hughes Lorillard Target ComcastBioMarin Pharmaceutical Public Service Enterprise GroupMolson Coors Brewing Company


Grupo Televisa(Mexico)

NORTH AMERICA: A GROWING SOURCE OF OPPORTUNITY

AGRIUM: LOW COST NORTH AMERICAN FERTILIZER COMPANY

About Agrium

• Agrium is a North American based global agriculture company with a market capitalization of $16 billion. It produces and distributes agricultural nutrients, industrial products, and specialty fertilizer. Its low cost production gives Agrium an advantage in global crop inputs, which are in the midst of a secular bull market driven by crop yield pressures.

Valuation:

10x P/E 6x EV/EBITDA 7% FCF yield

Crop inputs are driven by farmer demand and ultimately by crop prices. The tight supply/demand balance in crops has led to historically low stock-to-use ratios and the need for better yield.

The security identified above is not necessarily held by Altrinsic Global Advisors, LLC for all client portfolios, and should not be considered a recommendation or solicitation to purchase or sell this security. It should not be assumed that any investment in this security was, or will be, profitable.

NOVARTIS: A GLOBAL FRANCHISE GROWING QUICKER THAN THE MARKET RECOGNIZES

About Novartis• Located in Basel, Switzerland, Novartis is a global diversified

pharmaceutical company. • Key drugs include:

– Glivec for chronic myelogenous leukemia and its follow-on Tasignia

– Lucentis for age-related macular degeneration– Recently launched Gilenya for multiple sclerosis – Afinitor for cancer

Current pricing does not include the pipeline:Price: 67 CHF Intrinsic Value: 73 CHF Yield: 3.4%

Why we like Novartis:Over the next several years, Novartis will lose patent protection on two key

revenue-generating drugs, Diovan (hypertension) and Glivec (leukemia). It is our view that Novartis has the ability to grow despite these patent expiries through new drugs and strategic acquisitions. This growth ability is being undervalued by the market.

Recent acquisitions include Alcon, an eyecare company with margins and growth rates superior to Novartis’. Additionally, Novartis has launched new drugs like Tasigna (leukemia), Gilenya (multiple sclerosis) and Afinitor (renal cell carcinoma) which will help offset the patent expiries. As new drugs are approved, intrinsic value will rise. 13 pivotal clinical trials are expected to read out over the next 12 months.


-6%

-3%

0%

3%

6%

9%

12%

Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Loan Growth

Bank of Yokohama European and US Banks Combined

BANK OF YOKOHAMA: A JAPANESE BANK WITH SIGNIFICANT AVENUES FOR GROWTH

About Bank of Yokohama• Bank of Yokohama is the largest bank in the Kanagawa region, which

offers some of the best demographic opportunities in Japan. • The bank has strong capital levels and an enviable deposit franchise.

Management remains very shareholder-friendly, providing a large dividend payout ratio and significant share buybacks.

Current pricing is attractive:

Price: 67 CHF Intrinsic Value: 73 CHF Yield: 3.4%

Why we like Bank of Yokohama:

Over the next several years, Novartis will lose patent protection on two key revenue-generating drugs, Diovan (hypertension) and Glivec (leukemia). It is our view that Novartis has the ability to grow despite these patent expiries through new drugs and strategic acquisitions. This growth ability is being undervalued by the market.

Recent acquisitions include Alcon, an eyecare company with margins and growth rates superior to Novartis’. Additionally, Novartis has launched new drugs like Tasigna (leukemia), Gilenya (multiple sclerosis) and Afinitor (renal cell carcinoma) which will help offset the patent expiries. As new drugs are approved, intrinsic value will rise. 13 pivotal clinical trials are expected to

read out over the next 12 months.


SUMMARY

1. Since markets bottomed in March 2009, unconventional policies intending to boost confidence have done so as liquidity largely bypassed the real economy and boosted asset prices (following the path of least resistance)

1. Conditions have improved, but significant imbalances remain• Three primary risks (1994, China, Policy)

1. Implications• Long term absolute and relative value in global equities, but expect a jagged and volatile pathway

in asset prices as deflationary forces battle inflationary policies.• Following an episode of extremely high stock correlations, we expect bottom-up factors to resurface

as drivers of performance.• Potential for significant value to be realized by management teams that are aligned with shareholders

and focus on value creation.

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