Information Technology Company Presentation

Scott McGrath John Morgan Denise MorrisonBy:

Finance 724/824SIM Class

Autumn 2009

Agenda

• Recommendation

• Recap Sector Presentation

• Company Analysis– MSFT– IBM– Oracle– NCR

• Summary

Recommendation

• Sell all MSFT -461 bps

• Buy IBM +252 bps (bring to 450)

• Buy ORCL +91 bps (bring to 450)

• Buy NCR +118

• Keep IT Sector in line with S&P @ 19%

Recap Recommendation

• Long Term:– Info Tech will be sector leader amongst S&P

• Short Term:– Have enjoyed strong outperformance– Rebound in economy/spending may take time

Recap Recommendation Bring our Sector weight in line with S&P500• Why?– Info Tech sector is up 42% YTD compared to

14% for the S&P 500• GDP Growth forecasted 2% – 2.5% for years to

come puts some pressure on IT growth• Majority of growth s/t likely to come from smaller

companies (we don’t own)

– Being in-line with S&P 500 index still has Info Tech at a 19% allocation

10/31/2009 - Student Investment Management Fund (SIM) MTD Trailing 3MO Calendar YTD Fiscal YTD Trailing 12MO3YR 5YR 10YR 15YR Inception

S&P 500      -1.86% 5.48% 17.05% 13.46% 9.80% -7.02% 0.33% -0.95% 7.33% 8.22%

SIM (Gross of fees)       -2.23% 4.29% 18.90% 13.47% 10.07% -7.25% 0.26% 0.51% 6.56% 7.32%

SIM (Net of fees)       -2.23% 4.15% 18.46% 13.33% 9.52% -7.71% -0.24% 0.01% 6.03% 6.79%

+ Net Outperformance/ - (Net Underperformance)     -0.37% -1.33% 1.41% -0.13% -0.28% -0.69% -0.57% 0.96% -1.30% -1.43%

                         

Sector S&P 500 Weight SIM Weight +/-   Top 5 Performers   Top 5 Portfolio Movers

Consumer Discretionary 9.11% 7.51% -1.60%  Safeway Inc.   13.24%  Safeway Inc.   13.24%Consumer Staples 11.94% 12.23% 0.29%  ConocoPhillips Co. 11.12%  ConocoPhillips Co. 11.12%Energy 12.35% 12.80% 0.45%  Visa Inc. 9.62%  Microsoft Corp. 7.81%Financials 14.66% 6.59% -8.07%  Microsoft Corp.   7.81% BP plc. - ADR 6.37%Health Care 12.65% 13.13% 0.48%  BP plc. - ADR   6.37% Visa Inc.   9.62%Industrials 10.09% 11.97% 1.88%  

  

    

     

Information Technology 19.04% 21.97% 2.92%   Bottom 5 Performers         Materials 3.39% 4.52% 1.13%  NCR Corp.   -26.56%         Telecommunication Services 3.09% 3.51% 0.43%  First Solar -20.23%         Utilities 3.68% 3.19% -0.49%  Comcast Corp. -14.10%         Cash 0.00% 2.51% 2.51%  UTI Worldwide Inc. -13.88%         Dividend Receivables 0.00% 0.08% 0.08%  

Monsanto Co.   -13.20%       

 

  100.00% 100.00% 0.00%                                              

Top 10 Holdings                    Ticker Security Mkt. Value % Mkt. Value              

RIG Transocean Ltd. $855,882 4.75%                   MSFT Microsoft Corp. $832,981 4.62%                   

BP BP plc. - ADR $832,314 4.62%                   OSK Oshkosh Truck Corp. $784,626 4.36%                   PEP Pepsico Inc. $720,545 4.00%                   HPQ Hewlett Packard Co. $713,134 3.96%                   JNJ Johnson & Johnson Co. $671,753 3.73%                   

ORCL Oracle Corp. $651,990 3.62%                   COP ConocoPhillips Co. $617,214 3.43%                   TEVA Teva Pharmaceutical Industries Ltd. $615,856 3.42%                   

Grand Total $7,296,295 40.51%                   

The Ohio State UniversityFisher College of Business

Student Investment Management PortfolioPortfolio Appraisal Record

November 29, 2009

Stock Shares Cost/Share Total Cost Current Price Current Value Gain (Loss) Weight

HPQ 15,026 47.20 709,227.20 49.07 737,325.82 28,098.62 3.87%

IBM 3,000 118.64 355,920.00 125.70 377,100.00 21,180.00 1.98%

INTC 27,900 22.07 615,753.00 19.11 533,169.00 (82,584.00) 2.80%

MSFT 30,039 27.76 833,882.64 29.22 877,739.58 43,856.94 4.61%

NCR 40,300 26.54 1,069,562.00 9.67 389,701.00 (679,861.00) 2.05%

ORCL 30,900 17.29 534,261.00 22.09 682,581.00 148,320.00 3.59%

Total IT 3,597,616.40 (520,989.44) 18.90%

Total SIM 19,037,799.41

S&P500 IT Weight 18.92%

SIM Information Technology Target Price Overview*

*Prices as of 11/29/09

Company Symbol CurrentPrice

Target Price

% Upside

IBM, Corp. IBM 125.70 173 37.6%

Oracle Corp.

ORCL 22.09 30.41 37.6%

NCR Corp. NCR 9.67 11.90 23.06%

Intel INTC 19.11 23.50 22.97%

Hewlett -Packard

HOQ 49.07 59.68 21.62%

Microsoft MSFT 29.22 31.88 9.10%

MSFT vs. S&P 500

MSFT Financial Analysis

Microsoft (MSFT)

Analyst: Scott McGrath Terminal Discount Rate = 10.0%11/27/2009 Terminal FCF Growth = 4.5%

Year 2009A 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 58,437 61,800 65,250 70,750 73,934 77,261 80,738 83,967 87,326 90,819 94,451 % Grow th 5.8% 5.6% 8.4% 4.5% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0%

EBT 20,706 22,020 23,686 26,036 26,616 27,814 29,066 30,228 31,437 32,695 34,003 EBT Margin 35.4% 35.6% 36.3% 36.8% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 5,252 5,615 5,921 6,509 6,654 6,953 7,266 7,557 7,859 8,174 8,501 Tax Rate 25.4% 25.5% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%

Net Income 15,454 16,405 17,764 19,527 19,962 20,860 21,799 22,671 23,578 24,521 25,502 % Grow th 6.2% 8.3% 9.9% 2.2% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0%

Add Depreciation/Amort 2,562 2,009 2,088 2,123 2,218 2,318 2,422 2,519 2,620 2,725 2,834 % of Sales 4.4% 3.3% 3.2% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Plus/(minus) Changes WC 3,375 618 (392) (233) (244) (255) (266) (277) (288) (300) (312) % of Sales 5.8% 1.0% -0.6% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3% -0.3%

Subtract Cap Ex 3,119 2,200 2,170 2,193 2,218 2,318 2,422 2,519 2,620 2,725 2,834 Capex % of sales 5.3% 3.6% 3.4% 3.1% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Free Cash Flow 18,272 16,831 17,291 19,223 19,718 20,605 21,533 22,394 23,290 24,221 25,190 % Grow th -7.9% 2.7% 11.2% 2.6% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0%

NPV of Cash Flows 124,791 40%NPV of terminal value 184,526 60% Terminal Value 478,614 Projected Equity Value 309,317 100%Free Cash Flow Yield 7.04% Free Cash Yield 5.26%

Current P/E 16.8 15.8 14.6 Terminal P/E 18.8 Projected P/E 20.0 18.9 17.4 Current EV/EBITDA 10.1 9.7 9.1 Terminal EV/EBITDA 12.3 Projected EV/EBITDA 12.2 11.8 11.0

Shares Outstanding 8,896.0

Current Price 29.19$ Implied equity value/share 34.77$ Upside/(Downside) to DCF 19.1%

Debt 5,746 Cash 31,447 Cash/share 3.53

MSFT Recap

• Target Price of $31.88 (9.1% upside)

IBM: Company Overview

• Industry leader in providing business and information technology services

• A diversified company having a major impact in most IT industries:– IT infrastructure and business process

services– Consulting and systems integration– Computing and storage solutions

IBM: Company Overview

– Information management, integration, intelligence, and security

– Business financing

• World wide brand recognition

• Known for Eco Efficient solutions

• Focuses on business solutions

IBM Pros and Cons

Pros:

• Huge company, diversified in many IT industries

• Mgmt focus on high margin businesses (services, software)

• Brand Equity• Cash = $9.5B

Cons:

• S&P’s largest pension plan– liabilities?

• Needs business spending to rebound

IBM Drivers: Capital Spending

Graph of Stock Performance

Div Yield: 1.7%

IBM Financial Analysis

IBM Valuation

Absolute Valuation

High Low Median Current Target Multiple

Target E, S, B Per Share

Target Price

P/Forward E 33.8 9.6 18.3 13.0 16.0 11.09 177.44

P/S 2.7 1.1 1.7 1.7 1.7 76.81 130.58

P/B 11.6 3.7 6.0 8.9 10.3 12.4 127.72

P/EBITDA 13.10 5.02 9.09 7.14 9.10 15.9 144.69

P/CF 17.9 6.5 11.5 9.3 11.2 13.8 154.56

Analyst: Scott McGrath Terminal Discount Rate = 10.5%

11/29/2009 Terminal FCF Growth = 4.5%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 98,668 103,079 107,709 113,094 118,183 123,501 129,059 134,221 139,590 145,174 150,981

% Growth 4.5% 4.5% 5.0% 4.5% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0%

EBT 18,204 20,971 23,253 23,750 24,228 24,700 25,167 26,173 27,220 28,309 29,441

EBT Margin 18.4% 20.3% 21.6% 21.0% 20.5% 20.0% 19.5% 19.5% 19.5% 19.5% 19.5%

Interest - - - - - - - - - - -

Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 4,733 6,082 6,743 6,887 7,026 7,163 7,298 7,590 7,894 8,210 8,538

Tax Rate 26.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0%

Net Income 13,471 14,889 16,509 16,862 17,202 17,537 17,868 18,583 19,326 20,099 20,903

% Growth 10.5% 10.9% 2.1% 2.0% 2.0% 1.9% 4.0% 4.0% 4.0% 4.0%

Add Depreciation/Amort 5,500 5,412 5,655 5,937 5,909 6,175 6,453 6,040 6,282 6,533 6,794

% of Sales 5.6% 5.3% 5.3% 5.3% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5% 4.5%

Plus/(minus) Changes WC (2,330) 1,600 (1,050) (565) (591) (618) (645) (671) (698) (726) (755)

% of Sales -2.4% 1.6% -1.0% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5% -0.5%

Subtract Cap Ex 3,710 4,007 4,201 4,863 5,200 5,496 5,808 6,040 6,282 6,533 6,794

Capex % of sales 3.8% 3.9% 3.9% 4.3% 4.4% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%

Free Cash Flow 12,931 17,894 16,914 17,371 17,320 17,599 17,868 17,912 18,628 19,373 20,148

% Growth 38.4% -5.5% 2.7% -0.3% 1.6% 1.5% 0.2% 4.0% 4.0% 4.0%

NPV of Cash Flows 107,632 45%

NPV of terminal value 129,295 55% Terminal Value 350,918

Projected Equity Value 236,927 100%

Free Cash Flow Yield 7.55% Free Cash Yield 5.74%

Current P/E 12.7 11.5 10.4 Terminal P/E 16.8

Projected P/E 17.6 15.9 14.4

Current EV/EBITDA 7.8 7.0 6.4 Terminal EV/EBITDA 10.1

Projected EV/EBITDA 10.6 9.5 8.7

Shares Outstanding 1,362.0

Current Price 125.70$

Implied equity value/share 173.96$

Upside/(Downside) to DCF 38.4%

Debt 25,468

Cash 11,512

Cash/share 8.45

Sensitivity Analysis

10.0 10.5 11.0 11.5 12.0

4.0 179.63 166.23 154.74 144.78 136.05

4.5 189.13 173.96 161.10 150.07 140.50

5.0 200.54 183.08 168.51 156.17 145.58

5.5 214.48 194.03 177.28 163.29 151.44

6.0 231.91 207.42 187.79 171.71 158.28

Discount Rate

Gro

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IBM Recap

• Target Price of $173 (38% upside)

• High Margin solutions, Enterprise focus

• Globally diversified

• Industry diversified

• Market Leader

Oracle Company Overview

• World’s largest enterprise software company• Began in 1977; was incorporated in 2005• 2009 Revenues of $23.3 billion• Software and Services Businesses

– 5 Operating Segments:• New Software Licenses• Software License Updates and Product Support• Consulting• On Demand• Education

Oracle Drivers: GDP

Oracle Drivers: CPI

Oracle Drivers: Fed Funds Rate

Oracle 12 Month Performance

Oracle vs. S&P 500

Oracle Financial Analysis

Oracle Valuation

Absolute Valuation

High Low Median Current Target Multiple

Target E, S, B Per Share

Target Price

P/Forward E 117.9 10.6 19.5 14.0 19.5 1.55 30.23

P/S 27.5 3.4 6.2 4.8 6.2 4.72 29.26

P/B 61.9 3.4 7.6 4.0 7.6 5.47 41.57

P/EBITDA 97.13 8.06 15.25 8.51 15.25 2.57 39.19

P/CF 140.3 8.5 20.4 11.8 20.4 1.85 37.74

Oracle Company OverviewORACLE CORPORATION (ORCL)

Analyst: Denise Morrison Terminal Discount Rate = 11.0%11/27/2009 Terminal FCF Growth = 5.0%

Year 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenue 23,661 25,270 26,705 28,307 30,006 31,806 33,714 35,737 37,882 40,154 42,564 % Grow th 6.8% 5.7% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

EBT 10,926 11,950 12,899 13,531 14,343 15,203 16,116 17,082 18,107 19,194 20,345 EBT Margin 46.2% 47.3% 48.3% 47.8% 47.8% 47.8% 47.8% 47.8% 47.8% 47.8% 47.8%

Interest - - - - - - - - - - - Interest % of Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Taxes 3,169 3,465 3,741 3,924 4,159 4,409 4,673 4,954 5,251 5,566 5,900 Tax Rate 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0% 29.0%

Net Income 7,758 8,484 9,159 9,607 10,183 10,794 11,442 12,129 12,856 13,628 14,445 % Grow th 9.4% 7.9% 4.9% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%

Add Depreciation/Amort 1,965 1,965 1,965 1,982 1,950 1,908 1,686 1,429 1,136 1,004 851 % of Sales 8.3% 8.0% 7.5% 7.0% 6.5% 6.0% 5.0% 4.0% 3.0% 2.5% 2.0%

Plus/(minus) Changes WC (218) (298) (265) (283) (300) (318) (337) (357) (379) (402) (426) % of Sales -0.9% -1.2% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0% -1.0%

Subtract Cap Ex 500 500 500 566 600 636 674 715 758 803 851 Capex % of sales 2.1% 2.0% 1.9% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Free Cash Flow 9,004 9,652 10,358 10,739 11,234 11,749 12,116 12,486 12,856 13,427 14,020 % Grow th 7.2% 7.3% 3.7% 4.6% 4.6% 3.1% 3.1% 3.0% 4.4% 4.4%

NPV of Cash Flows 67,583 44%NPV of terminal value 86,406 56% Terminal Value 245,344 Projected Equity Value 153,989 100%Free Cash Flow Yield 8.85% Free Cash Yield 5.71%

Current P/E 13.1 12.0 11.1 Terminal P/E 17.0 Projected P/E 19.8 18.2 16.8 Current EV/EBITDA 8.6 8.0 7.5 Terminal EV/EBITDA 12.0 Projected EV/EBITDA 12.7 11.7 11.0

Shares Outstanding 5,063.0

Current Price 20.09$ Implied equity value/share 30.41$ Upside/(Downside) to DCF 37.6%

Debt 21,971 Cash 12,624 Cash/share 2.49

Oracle Sensitivity Analysis

Growth Rate4.0% 4.5% 5.0% 5.5% 6.0%

10.0% 32.47$ 34.25$ 36.39$ 39.00$ 42.26$ 10.5% 29.98$ 31.42$ 33.13$ 35.18$ 37.68$ 11.0% 27.84$ 29.03$ 30.41$ 32.05$ 34.02$ 11.5% 25.98$ 26.97$ 28.12$ 29.45$ 31.02$ 12.0% 24.36$ 25.19$ 26.14$ 27.24$ 28.52$

Discount Rate

Oracle Conclusion

• Stock is trading at $22.09/share

• Target price is $30.41

• Upside is 37.6%

• Recommend BUY 91 basis points

NCR: Company Overview

• Number 1 producer of ATMs, retail self-checkout, airline and healthcare self-check in, and paper roll production

• Headquarters recently moved from Dayton, OH to Deluth, GA

• 2008 Revenues of 5.315 Billion

• Main industries include financial, retail, food, health, and travel

NCR Pros and Cons

Pros:

1) Vertical Integration

2) Global Presence

3) Reputation

4) High Barriers to Entry ($148M R&D)

Cons:

1) Entry into DVD Kiosk arena

2) Some fragile markets

3) State of economy (Beta = 1.61)

4) Low EBT ratio

Drivers: GDP

Drivers: Capital Spending

Graph of Stock Performance

NCR Financial Analysis

NCR ValuationAbsolute Valuation

High Low Median Current Target Multiple

Target E, S, B

Per Share

Target Price

P/Forward E 22.2 7.6 10.2 19.5 10.2 .89 9.078

P/S 1 .1 .4 .5 .4 26.62 11.45

P/B 5.1 .5 1.3 3.9 1.3 10.65 13.85

P/EBITDA 13.1 1.61 3.67 3.65 3.67 2.89 10.61

P/CF 13.6 1.5 5.1 4.5 5.1 2.34 11.96

Average Target Price of $11.39/share

Analyst: John Morgan Terminal Discount Rate = 11.0%10/19/2009 Terminal FCF Growth = 5.0%

Year 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Revenue 4,650 4,836 5,078 5,332 5,598 5,878 6,172 6,481 6,772 7,077 7,396 % Growth 4.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5%

EBT 150 156 164 187 196 206 216 227 237 248 259 EBT Margin 3.2% 3.2% 3.2% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%

Interest 24 24 24 25 26 28 29 31 32 33 35

Interest % of Sales 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5%

Taxes 5 5 5 42 44 47 49 51 54 56 59 Tax Rate 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Net Income 145 151 159 169 178 187 196 206 215 225 235 % Growth 4.2% 5.2% 6.6% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5%

Add Depreciation/Amort 93 97 102 107 112 118 123 130 135 142 148 % of Sales 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Plus/(minus) Changes WC 98 (80) (104) (64) (67) (71) (74) (78) (81) (85) (89) % of Sales 2.1% -1.7% -2.0% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2% -1.2%

Subtract Cap Ex 64 67 70 75 78 82 86 91 95 99 104

Capex % of sales 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%

Free Cash Flow 272 101 87 137 144 152 159 167 175 182 191 % Growth -62.8% -14.2% 58.7% 5.0% 5.0% 5.0% 5.0% 4.5% 4.5% 4.5%

NPV of Cash Flows 827 41%

NPV of terminal value 1,175 59% Terminal Value 3,337 Projected Equity Value 2,002 100%Free Cash Flow Yield 16.70% Free Cash Yield 5.71%

Current P/E 11.2 10.8 10.2 Terminal P/E 14.2

Projected P/E 13.8 13.2 12.6

Current EV/EBITDA 5.0 4.8 4.6 Terminal EV/EBITDA 7.2 Projected EV/EBITDA 6.6 6.3 6.0

Shares Outstanding 165.0

Current Price 9.86$

Implied equity value/share 12.13$ Upside/(Downside) to DCF 23.0%

Debt 308 Cash 711 Cash/share 4.31

Sensitivity Analysis

4% 4.5% 5% 5.5% 6%

10% $12.98 $13.72 $14.61 $15.70 $17.06

10.5% $11.94 $12.55 $13.26 $14.11 $15.16

11% $11.06 $11.55 $12.13 $12.82 $13.64

11.5% $10.29 $10.70 $11.18 $11.73 $12.39

12% $9.62 $9.96 $10.36 $10.82 $11.35

Growth Rate

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NCR Conclusion

• Stock is trading for $9.67/share

• My target is $11.90 vs. mean target of $13.76 (upside of 23.06% - 39.55%)

• Will recover as economy and capital spending improve

• We have been killed by this stock, but don’t give up on it just yet.

Other IT Stocks Considered*

Company Symbol Current Price Target % Upside

Nokia NOK 13.21 15.73 19.08%

EMC Corp EMC 16.75 19.81 18.27%

Cisco CSCO 23.38 26.76 14.46%

Fiserv Inc. FISV 46.29 52.14 12.64%

Texas Instruments, Inc. TXN 25.25 27.56 9.15%

Google GOOG 579.76 632.62 9.12%

* Prices as of 11/29/09

IT Sector Recap

• Sell all MSFT (least upside)

• Buy IBM +252 bps

• Buy ORCL +91bps

• Buy NCR +118 bps