Utilities Sector Analysis

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Utilities Sector Analysis

• Jonathan Iwamasa
• Matt Youmans

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Recommendations

• Reduce holdings in Utilities by 50bps
• We currently hold 2.53 or 597K
• New holding would be 2.03 or 479k
• SP 500 currently holds 3.61

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Utilities Sector Composition

• Diversified Utilities
• Electric Utilities
• Foreign Utilities
• Gas Utilities
• Water Utilities

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Major Players in each Industry

• Electric Utilities
• Southern Co. (SO) 27.9B
• FPL Group Inc. (FPL) 26.5B
• Duke Energy Corp. (DUK) 22.8B

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Major Players in each Industry

• Diversified Utilities
• Exelon Corp. (EXC) 55.8B
• Gas Utilities
• National Grid plc (NGG) 38.1B

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Major Players in each Industry

• Foreign Utilities
• Veolia Environnement SA (VE) 31.9B
• Water
• Aqua America Inc. (WTR) 2.5B

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Financials of Utility Industries
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More Financials

• Utilities YTD -4.66, QTD 6.75
• SP 500 YTD -5.89, QTD 5.22
• Utilities tend to be defensive
• We attribute the performance of Utilities to
  investor fears about recession
• We dont feel that this trend will continue

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Utilities vs. Market
What is the consensus growth rate of
Utilities? 9
What is the consensus growth rate of the
market? 12
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Analysis of Sector Relative to Market
Note Utilities are under-performing the market
in most ratios
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Sector Growth Projections

• Next Qtr. Growth is expected to fall 6 for FPL
• Both Industry and Sector predict slowing Growth
• FPL is growing slower than Industry or Sector

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Graphs of Utilities vs. Market
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Graphs of Utilities vs. Market
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Utilities Sector Performance

• Many utilities are trading near 52 week highs
• Utilities are growing slower than the market and
  have lower returns/ratios
• We suspect utilities are at a peak
• We suggest underweighting Utilities

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Business Analysis Why Underweight?

• Price Increases on Inputs for Energy
• Natural Gas prices in the U.S. have risen 93
  since late August '07
• Legislation requiring reductions of CO2 Emissions
  could require significant CAPEX
• Coal prices continue to increase

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Business Analysis
Coal Prices as of 4/11/08
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Climate Change Influence

• Push for Nuclear Power
• FPL 2 new reactors were approved
• Sen. John McCain -
• "Nuclear power has to be an important part of the
  actions to reduce greenhouse gases

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SIMS Portfolio Utilities Holdings

• SIMS currently holds Florida Power and Light
  (FPL)
• FPL has performed well in Sector

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SIMS Portfolio Utilities Holdings
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SIMS Portfolio Utilities Holdings

• FPL vs. SP 500 performance

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FPL Fundamental Analysis
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Questions?