NOVEMBER EDITION

NOVEMBER EDITION
The Society
Our Team

4-5

What is ICIS

Key Terms

Analysis in Depth
Discounted Cash Flow

7-9

Rights Issues

10

Options

11

Innovating the Traditional Banking Model

12

Member Articles

Is Ferrari Losing This Race?

12-13

SABMiller & InBev

14

Sharing Economy

15

Is the End In Sight for Lonmin PLC?

16

Head of Sector Summaries

17-22

The Industry
Types of Internships
A Previous Interns Advice

23
24-25

Useful Websites

26

Credit Suisse Application Advice

27
2

OUR SPONSORS
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Disclaimer
Contributors:
Colton Morris, Olivier Khatib, Lawrence Law, Shashi Hazra
David Hill, Kenneth Kan, Taran Patel, Xiaohan Zhang, Maximilian Niroomand
Kenrick Kan, Matthew Gela, Martin Chak, Ellis Skinner
3

Information in this magazine is provided for

educational purposes only. You should
NOT make any decisions, financial investments, trades or otherwise, based on any
information provided.

THE SOCIETY
Management Team

Vibhav Sajjan

Ellis Skinner

Taran Patel

President

Vice-President

Chief Investment Officer

3rd Year Mathematics

2nd Year ChemEng

2nd Year MechEng

Events Team

Charles Price Smith

Adi Krpo

Events Director

Marketing Director

3rd MechEng

3rd Year EEE

THE SOCIETY
ICIS Magazine Team

Ahmed Raja

Olivier Khatib

Editor-In-Chief

Production Editor

2nd Year Materials

Postgrad CompSci

Lawrence Law

Shashi Hazra

Design Editor

Publicity Director

2nd Year Mathematics

1st Year ChemEng

Administrative Team

Siddharth Garg
Webmaster
3rd Year EEE

Benjamin Skirrow
Treasurer
3rd Year Mathematics
5

Matthew Gela
Secretary
3rd Year Biochemistry

What is ICIS?
ICIS is the fastest growing student-run society at Imperial. We hold weekly stock pitches every Tuesday on campus using a virtual trading portfolio, with the capability for investments into most major global markets (LSE; NYSE; NASDAQ etc.). Our Tuesday meetings aim to
be interactive and informative, where all members present have the chance to present, ask
questions and vote on proposed investments. As a member, you are welcome to attend all
our events for free, and we wont spam you with emails, typically just a weekly update informing you of all our great opportunities we have to offer that week, as well as other key dates to
watch out for.

Key Terms:
In order to get the most out of our events and improve your understanding of financial news
articles and our sponsors websites, we have compiled a list of essential common phrases and
acronyms to help you out:
Asset:

Something of value to its ownere.g. intellectual property, shares, etc.

Bond:

A Security based on debt obligation. Ownership of a bond means that you have lent money to somebody and in return you shall receive your money back at a future date plus additional annual repayments as a reward for lending.

Equity:

The value of the shares of a company.

FX/FOREX:

An abbreviation for the Foreign Exchange market.

Hedging:

Hedging is an investment strategy which reduces how much risk you are exposed to. This
is typically done using derivatives. A more in depth example is presented later on.

Interest Rate:

The amount of money charged in return for borrowing.

IPO:

Initial Public OfferingA privately owned company offers the general public the opportunity to buy shares of the company. This means for the company to raise capital by selling off partial ownership of it.

LBO:

Leveraged Buy OutWhen one company buys another firm, using borrowed money to
pay for the acquisition.

Liquidity:

A measure of how easy it is to source a buyer/seller for a given security.

M&A:

Mergers and Acquisitionsa subdivision within the investment banking department (IBD)
which deals with advertising client companies on takeovers and mergers.

Option :

A security that when purchased gives you the ability to execute a future transaction at a
price agreed upon todays market.

Proprietary
Trading:

Buying or selling securities in order to make a direct profit. This is in contrast to how
most investment banks trade on behalf of their clients.

Security:

Anything of monetary value that can be traded.

Stock/Share:

A security which is the partial ownership of a company.

DCF
Fundamental Valuation Method of a Company:
Discounted Cash Flow (DCF)
DCF analysis says that a company is worth all of the cash that it could make available to investors in the future. It is described as "discounted" cash flow because cash in the future is worth less than cash today.
1) FORECASTING FREE CASH FLOWS
Free cash flow is the cash that flows through a company in the course of a quarter or a year, once all cash
expenses have been taken out. This is calculated as, (see figure):
Future Operating Costs: i.e. salaries, cost of goods sold (CoGS), selling and
general administrative expenses (SGA), and research and development
(R&D). A good place to start when forecasting operating costs is to look at
the company's historic operating cost margins. The operating margin is operating costs expressed as a proportion of revenues.
Taxes: Many companies do not actually pay the official corporate tax rate on their operating profits. For instance, companies with high capital expenditures receive tax breaks. Thus, it makes sense to calculate the tax
rate by taking the average annual income tax paid over the past few years divided by profits before income
tax.
Net Investment: You can calculate net investment by taking capital expenditure, disclosed in a company's
statement of cash flows, and subtracting non-cash depreciation charges, found on the income statement.
Change in Working Capital: Working capital refers to the cash a business requires for day-to-day operations,
or, more specifically, short-term financing to maintain current assets such as inventory. Working capital is
calculated as current assets (i.e. account that represents the value of all assets that can reasonably expected to
be converted into cash within one year) minus current liabilities (i.e. company's debts or obligations that are
due within one year).
Net change in working capital is the difference in working capital levels from one year to the next. When
more cash is tied up in working capital than the previous year, the increase in working capital is treated as a
cost against free cash flow.
2) CALCULATING THE DISCOUNT RATE
Having projected the company's free cash flow for the next five years, we want to figure out what these cash flows are
worth today. That means coming up with an appropriate discount rate which we can use to calculate the net

present value (NPV) of the cash flows.

A good strategy is to apply the concepts of the weighted average cost of capital (WACC), which is essentially
a blend of the cost of equity and the after-tax cost of debt.

DCF
1)

Cost of Equity:

Where:
rf is the risk-free rate (ie. amount obtained from investing in securities considered free from credit risk,
such as government bonds from developed countries)
is Beta (ie. it measures how much a company's share price moves against the market as a whole. A
beta of 1 indicates that the company moves in line with the market. If beta is more than 1, the share is exaggerating the market's movements. If less than 1, it is more stable).
(rm - rf) is the Equity Market Risk Premium (ie. it represents the returns investors expect, over and
above the risk-free rate, to compensate them for taking extra risk by investing in the stock market).
2) Cost of Debt:
Where:
-

rd is the rate of interest on debt

t is the tax rate (expressed as a percentage of pre-tax income)

Finally, the WACC is the weighted average of the cost of equity and the cost of debt based on the proportion
of debt and equity in the company's capital structure:

3) CALCULATING THE TERMINAL VALUE

Having estimated the free cash flow produced over the forecast period, we need to come up with a reasonable idea of the value of the company's cash flows after that period - when the company has settled into middle-age and maturity.
Gordon Growth Model
There are several ways to estimate a terminal value of cash flows, but one well-worn method is to value the
company as a perpetuity using the Gordon Growth Model. The model uses this formula:

Where:

g = growth rate
n = the number of years
FCFF = free cash flows forecasts

DCF
The formula rests on the big assumption that the cash flow of the last projected year will stabilise and continue at the same rate forever.
To arrive at a total company value, or enterprise value (EV), we simply have to take the present value of the
cash flows, divide them by the company's 11% discount rate and, finally, add up the results.

Where:

i = the specified year

n = the number of years
FCFF = free cash flows forecasts
TV = terminal value
EV = enterprise value
4) CALCULATING THE FAIR VALUE OF EQUITY
The enterprise value includes the company's debt. As equity investors, we are interested in the value of the
company's shares alone. To come up with a fair value of the company's equity, we must deduct its net
debt from the value.
Fair Value of the company equity = Enterprise Value Debt

5) PROS AND CONS OF DCF

PROS

CONS

Produces the closest thing to intrinsic If assumptions are wrong/incorrect then

the output will be inaccurate

stock value

Relies on FCF, which are trustworthy be

cause FCF cut through reported earning

"guesstimates" and tracks the money left

over for investors

Identifies where companies value is com

ing from and if current stock price is jus
tified

SOURCE:Investopedia.com

Terminal Value calculation projects the

FCF into the future at the same rate,
which will clearly never happen
The debt to equity ratio is held constant
in the WACC

Rights Issue
Rights Issues Explained
Cash-strapped companies can turn to rights issues to raise money when they really need it. In these rights
offerings, companies grant shareholders a chance to buy new shares at a discount to the current trading
price.

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
More specifically, this type of issue gives existing shareholders securities called "rights", which, well, give the
shareholders the right to purchase new shares at a discount to the market price on a stated future date. The
company is giving shareholders a chance to increase their exposure to the stock at a discount price. But until
the date at which the new shares can be purchased, shareholders may trade the rights on the market the
same way they would trade ordinary shares. The rights issued to a shareholder have a value, thus compensating current shareholders for the future dilution of their existing shares' value.

Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow
more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets
use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company
will usually, but not always, have its rights issue underwritten by an investment bank (This means that the
bank will provide the remaining amount if the issue fails).

In estimating the dilution, remember that you can never know for certain the future value of your expanded
holding of the shares, since it can be affected by any number of business and market factors. But the theoretical share price that will result after the rights issue is complete - which is the ex-rights share price - is possible
to calculate. This price is found by dividing the total price you will have paid for all your shares by the total
number of shares you will own. For the Lonmin example later on, this is calculated as follows:
-

1 existing share at 16.50 GBX

46 new shares for cash at 1 GBX
Value of 48 shares
Ex-rights value per share (62.50/47)

16.50
46
62.50
1.33

GBX
GBX
GBX
GBX

So, in theory, as a result of the introduction of new shares at the deeply discounted price, the value of each
of your existing shares will decline from 16.50 GBX to 1.33 GBX. But remember, the loss on existing shareholding is offset exactly by the gain in share value on the new rights: the new shares cost you 1 GBX, but
they have a market value of 1.33 GBX. These new shares are taxed in the same year as you purchased the
original shares, and carried forward to count as investment income, but there is no interest or other tax penalties charged on this carried-forward, taxable investment income.

10

Options
Pricing Options
Options are contracts that, when sold, gives the purchaser the right, but not the obligation to sell or buy an
underlying asset within an agreed upon period of time at an agreed upon price. A call option is a one where
the investor is given the chance to buy in the future, and a put option is one where he/she can sell if it is so
wished.

Its a financial instrument designed to hedge the risks taken on by the investor. If the investor is uncertain
about the future of an asset and how it will be priced, the option of selling or buying it in the future at a price
ascertained today can help ease the exposure to risk and allow the investor to cap their losses, at the price of
reduced potential profit.
On the opposite side of the deal, it forces the seller to take on risk. If for example a put option was sold, the
seller has the obligation to buy an asset from the buyer of the option if the buyer so wishes. If the asset becomes worthless in the future, the seller will effectively have to spend money on worthless assets.

Which leads us to think about how one should price options? In 1973, Fischer Black and Myron Scholes
wrote a paper on the estimation on the pricing of European derivatives, arriving at a partial differential equation that has been shown to give reasonable accurate predictions. Its called the Black Scholes equation and
is widely used by investment banks. The derivation is one that is a bit much to be stated here, but it demonstrates one of the many ways in which Mathematics has a part to play in the world of investment.

Its worth highlighting the fact that Scholes then went on to become a partner of a hedge fund called LongTerm Capital Management, and a year after winning a Nobel prize for Economics, the firm suffered tremendous losses and crashed.

Also worthy of note is how the equation changed the derivatives market, leading to more and more quantitative and mathematical models along with an expansion in the trading market. Some say its dangerous to rely
on these models since assumptions are not always correct, and that its not only the bankers who suffer the
losses. Regardless, these models continue to be widely developed.

11

Traditional Banking Model

Innovating the Traditional Banking Model
J.P. Morgan Chase have announced they plan to launch Chase Pay, the latest in a line of giant entrants to the
mobile payments landscape. They plan to enroll their customer base of 94 million automatically, and have
signed a deal with a group of major retailers, such as Walmart, 7-Eleven and Kmart. Gordon Smith, the
CEO of Consumer & Community Banking at JPM Chase, has called it a true omnichannel payments experience, with customers being able to use it to make in-store, in-app and online purchases.
Mobile payment processing technologies, such as PayPal and Square, are reinventing key elements of financial services. Particularly with stringent regulation, it has been difficult for banks to exploit ownership of the
payments network as a barrier to entry. And its not only payment processing in which FinTech innovation
has posed a threat. Peer-to-peer lending is proving popular as a provider of quicker and cheaper credit products, with P2P business lending achieving 250% growth on average between 2012 and 2014, and projected to
grow to 12bn by 2020. They are changing the way small businesses borrow through an array of new financing methods, such as peer-to-peer lending and invoice financing.
Since growth is still in the early stages, traditional banks have had the opportunity to learn from whats happened in the space so far, in order to understand and anticipate potential threats. And were starting to see
the reaction. Goldman Sachs revealed in June that they would be launching their own lending platform early
next year. More recently, they made a series of key hires to head up this effort: former Citigroup credit card
executive David Stark, former Lending Club (P2P lending) operations executive Darin Cline, and Boe Hartman, a former executive at Barclays PLC's Barclaycard division. J.P. Morgan are already an investor Americas first peer-to-peer marketplace, in Prosper Loans Marketplace. And now with the prospective launch of
Chase Pay, theyre reaffirming their transition into a digital banking model.
It remains to be seen whether this will set the benchmark for the other banks to follow. However, with so
much innovation, the banks would benefit from moving into the 21st century: with all the cost advantages
that pure digital distribution can provide, why wait?

Is Ferrari Losing This Race?

Ferrari (NYSE: RACE) was one the most hyped IPOs in 2015 as it raced into a poor IPO market.
The luxury automotive producer announced that it would float 17.2 million shares. This is about 10% of the
company. Another 10% will be owned by the Ferrari family and the remaining 80% of the company will be
owned by parent company, Fiat Chrysler Automobiles (NYSE: FCAU) which intends to distribute to its own
shareholders early next year
Ferrari officially priced its initial public offering at $52 a share after the market closed.
On day one, it had a strong start and sold for $60 a share. But is Ferrari overvalued and trading at a premium? Ferrari shares were trading at about 30x earnings compared to about 10x earnings for the average auto
maker. However, RACE has been on a slide.
12

Ferrari IPO
Ferrari is the brand in the luxury automotive industry. Everyone can identify its prancing horse. This naturally creates increased hype and excitement. There will be people buying shares of the company simply because
of brand loyalty and to be part of the Ferrari movement. With only 10% of Ferrari shares being available on
the market, this creates a high demand. But will this scarcity possibly turn out to be a poor move on Fiats
end? As it is, the hype of the Ferrari IPO has settled down and its share price has already slid below its IPO
price.
Ferrari needs to keep growing. Last year, it had only about 7000 shipments which might seem like there is a
lot of room for growth. However, the limited number of cars available provides a form of exclusivity. It is this
that attracts the wealthiest people into buying a Ferrari. This year, Ferrari plans to increase its shipments to
about 9000. CEO of Fiat Sergio Marchionne said that this would be "to determine the natural limits of the
brand." Thus Ferrari needs to find a balance between expansion and maintaining its luxury image.
But Ferrari doesnt just sell cars. Another big source of its revenue is from engine sales to other automakers,
especially Maserati. It is worth noting that engine sales to Maserati in early 2015 declined compared to the
same period in 2014. This is because Maserati had reduced its vehicle shipments by 15%. This negative
trend is something that investors should be wary of. After all, as a luxury automaker
Maserati does need to keep its cars limited
to maintain its exclusive image as well.
Another form of Ferraris revenue comes
from merchandising and licensing. Ferrari
currently has two theme parks, and licensing partnerships with companies such as
Oakley and Microsoft. It should be noted
that having a large source of revenue from
merchandising and licensing could expose
Ferrari to greater risks. This is because Ferrari can be negatively affected if its partner
companies perform poorly.

SOURCES:RoadandTrack.com,TheFinancialTimes

However, we do have to take into account that Ferrari has indeed made merchandising a key area it would
like to expand into. Merchandise has still continued to contribute a decent fraction of Ferraris revenue. In
2014, it had made about 15% of its revenue from merchandising. Marchionne has also announced that Ferrari will look into extending its branding to not only luxury cars but luxury goods.
We also do need to take into account that ultimately Ferrari is a luxury automaker and it does provide cyclical protection. During its IPO, the company pushed for a luxury good valuation instead of an automaker valuation. Clientele of Ferrari are the wealthiest of people and despite economic downturns, we can expect
these wealthy people to still purchase the cars.
Overall, Ferrari seems to be lacking in terms of its growth plans. It will be difficult for the company to find
the right balance between expansion and maintaining the exclusivity of the brand. Investors should probably
wait before plunging into the Ferrari hype that has caused its overvaluation.
13

SABMiller & AB InBev

Mergers & Acquisitions: SABMiller & InBev
In September, AB InBev, the biggest brewer in the world began its bid for a merger with the worlds second
biggest brewer, SABMiller. SABMillers board had rejected multiple proposals from AB InBev stating that
the company was being undervalued. On October 13, SABMiller came to agreement with AB InBevs cash
offer of 44 per share. The 69 billion merger would be the third largest takeover deal in history.
The merger would provide opportunity for global expansion and thus the ability to tap into new markets.
For example, SABMiller owns Castle a major beer brand in Africa. On the other hand, AB InBev has almost no presence in Africa. Thus, this would seem complimentary and is seen as one of the key motivations
for the deal. Additionally, both companies would merge to consolidate their active presence in South America. There is little overlap as they both operate in different countries within the continent. Likewise, in Europe, both brewers would continue produce some of the worlds most popular beer brands such as Stella
Artois and Golsch. With the deal going through, one in every three pints sold worldwide would be sold by
the merged company.
Both AB Inbev and SABMillers growth has slowed as consumers are making the switch from mass market
brands to craft beer. Thus, the merger could act as a platform for further growth opportunities to deal with
this change. SABMiller had recently bought over London craft brewer, Meantime and AB InBev has made
several acquisitions in this field as well. With the two companies merged, they could possibly leverage on the
cost savings to continue expanding in this area through further acquisitions.
However, such a mega deal would face competition issues and scrutiny from regulators. This is particularly
so in the USA and China. With AB InBevs Budweiser and SABMillers MillersCoors overlapping, the US
market would be too heavily dominated by the merged company. MillerCoors is a joint venture between
SABMiller and Molson Coors. It is highly likely that SABMiller would have to sell its 58% stake in it. It is
believed that MillerCoors will buy it. Molson Coors shares have jumped by about 28% since AB InBev has
showed public interest in SABMiller. In China, the worlds largest beer market, SABMiller holds a 49%
stake in Snow a joint venture between SABMiller and China Resources Enterprise. Since 2008, Snow has
been the number one selling beer brand n the world. Thus, it is also likely that SABMiller would have to sell
its stake in Snow to satisfy Chinese regulators.
Another potential issue that arises is SABMillers and AB InBevs conflicting interest in Coca Cola and
Pepsi respectively. In November 2014, SABMiller had announced that it had come to terms with Coca Cola
on a merger to form Coca Cola Beverages Africa. On the other hand, AB InBev has worked rival, Pepsi
on a distribution deal in Brazil. This has caused controversy on how the Coca Cola Pepsi rivalry could impact the deal.
Overall, it is strongly believed that this
merger will be the final wave of consolidation in an industry that has been consolidating for years.
SOURCES:TheFinancialTimes,BBC
News

14

Sharing Economy
Sharing Economy Friends or Foes?
Sharing economy has been gaining a lot of attention recently, thanks to the huge growth of companies and
start-ups such as Airbnb and Uber. Airbnb is a website for people to rent their spare rooms to strangers for
short stays, which has amassed over 1,500,000 listings in 34,000 cities and 190 countries. Uber is an app
which allows people to submit a trip request to Uber drives with their own cars. By May 28, 2015, the service
was available in 58 countries and 300 cities worldwide. The huge growth of these two companies could be
attributed to its underlying business model of sharing economy.
What is Sharing Economy?
In short, sharing economy is a peer-to-peer borrowing and renting of goods and services. In fact, people have
shared the use of assets for many years. However, the advent of Internet has facilitated the sharing process by
making the process much easier than ever before. Since then, many start-ups have turned sharing into a profitable business model.
The Good
Optimization of Resources
Sharing economy enables the optimization of resources by utilizing unused resources. Take Airbnb as an
example, it allows user to rent out empty room but at the same time charge the guests at a lower price than a
normal hotel. It adds economic value to items that would otherwise be unutilized.
New Jobs
Many job opportunities could be created by sharing economy companies. These jobs are in many ways more
flexible than traditional employer-employee relationships. You can work whenever and wherever you want
by being a Uber driver. Moreover, you will have more autonomy on the service you provided.
The Bad
Safety and Liability
Sharing economy can raise safety concern of the customers. Recently, journalist Zak Stone has wrote a tragic
account on how his dad died during a family Airbnb rental. In fact, it is hard for the company to ensure customer safety, since it only provides a platform but not the service itself. And perhaps a more important question is who is responsible for the safety of the customer.
Tax and Regulation
Sharing economy can create loophole in the taxation system. Guests living in hotel are required to pay tax
but guests living in Airbnb do not need to pay any tax. It can dramatically reduce the taxation income of the
government. To counter this, UK Revenue & Customs plans to roll out new measure to target these companies to raise 1bn of extra tax by 2021.
Conclusion
Sharing economy has been seen transforming many industries such as transportation, accommodation and
skills. It disrupt the traditional industries by offering a cheaper alternative and creating new freelance jobs. At
the same time, there are safety, liability, taxation and regulatory concerns over sharing economy companies.
Although we could not rule out its downsides, sharing economy does promote efficient use of resources
which is good for our economy. Perhaps, we should not ask whether it is a friend or foe for us, but more importantly how we could mitigate its risks.
SOURCES:Uber.com,Airbnb.com,Investopedia,TheGuardianandMedium.com
15

Lonmins Future

Is the End in Sight for Lonmin PLC?

Lonmin PLC is a precious metals (Inc. Platinum) mining company operating in South Africa, it has had a
very tough year, with shares falling 90% this year! Investors in Lonmin have been battered by the slumping
platinum price and the consequent effect on the companys balance sheet, which has seen Lonmins share
value shrink by almost $900M.
The companys troubles go back almost ten years. The company embarked on a costly and ineffective programme to introduce more mechanised mining to its South African mines a decade ago. This failed attempt
at modernisation left Lonmin with plenty of debt and poor worker relations. A $475m rights issued followed
in 2009 after the company had reported a pre-tax loss of $196m and revenue tumbled from $907m to
$423m. During the first six months of 2009, Lonmin cut 7,000 staff and booked $44m of restructuring charges. Lonmin was forced to undertake another rights issue in 2012 after the Marikana violence, which cost
Lonmin 10,000oz of platinum production. This rights issue raised $817m in cash but Lonmins reputation
was left in tatters. Labour unrest at the companys Marikana mine left 34 striking miners dead and an enquiry
criticised Lonmin for failing to respond appropriately to the threat of, and the outbreak of, violence.
Lonmin have this year reported operating losses of $2Bn, and have forecasted losses for the few years to
come. At the release of their most recent earnings report, the company have also announced a $407M rights
issue, more than their Market Capitalisation, at a discount of almost 94% last week, with the miner warning it
could run out of cash if the fundraising fails. The share price as of Monday 9th November was 16.50 GBX,
the company have announced that shareholders in the company will be able to subscribe to receive 46 new
shares for each Lonmin share they own, at a price of 1p per share. Lonmins plans highlight the increasingly
urgent need for fresh capital in parts of the mining industry amid slumping commodity prices.
Lonmins management will use the cash from the latest rights issue to pay down debt, cut costs and return
the company to profit. These are precisely the same objectives the company had in mind for each of its last
two rights issues, and even though the company has raised just under $1.3bn from investors since 2009,
Lonmin has been unable to remain consistently profitable. The company has earned less than $600m from
operations since the financial crisis. Also, theres a big problem with Lonmins current plans. The company
has been chronically underinvesting in its mines for some time, and while management believes the group
can reach cash flow break-even by the end of 2016 by cutting costs further, at some point Lonmin will be
forced to increase capital spending to bring mines up to standard.
So overall, Lonmin has failed investors time and again over the past six years. Now investors are facing the
prospect of being diluted to zero; it might be time to give up on the company.
16

Head of Sector Summaries

Healthcare David Hill
Healthcare investors will have been glad for a period of relative calm following the uproar over Turing Pharmaceuticals change in pricing policy for their HIV drug. The attention that the sector subsequently received
from Hillary Clinton and other politicians, caused a selloff that saw the iShares NASDAQ Biotech Index
lose a quarter of its value in seven ugly days of trading at the end of September.
Since then, the index has regained 10%, while the SPDR S&P Biotech ETF is up 14%, as the sector looks to
resume its upward trajectory.
Speculative pricing has continued to fuel lofty Healthcare valuations, with Shire, the pharmaceuticals giant
based in Ireland, acquiring Dyax for $5.9bn. This represents a 33% premium on the 2nd November market
price, when the deal was announced. Dyax is in clinical trials with its second hereditary angioedema (HAE)
treatment, DX-2930, which looks set to the market by storm, blowing Dyaxs current drug, and Shires treatment out of the water. The companys stock price almost doubled in March, when it posted positive Phase 1
trial results for DX-2930. According to Flemming Ornskov, Shires CEO, the results suggested that it could
be a best-in-class product. With projected peak annual sales of $2bn, the hefty price tag could turn out to
be one worth paying.
Valeant Pharmaceuticals has suffered in the last six weeks, its share price falling from $242 in midSeptember, to just under $82. At the end of September, the company was subject to a subpoena request
from Congressional Democrats in the US regarding drug price increases. This, of course, came in light of the
Turing fiasco. Soon followed a report from short-seller Citron Research, who suggested that Valeant had engaged in fraudulent transactions and accounting practices to inflate its sales figures. Citron went so far as to
ask, Is this Enron part Deux?
Opinions appear to be mixed at this stage. Nomura analysts, for example, having met with Valeants CEO,
suggest that there has been no wrongdoing on Valeants part, and they rate the company as a buy with a $220
price target. Goldman Sachs, on the other hand, placed further downward pressure on Valeants stock price
last week. The investment bank sold 1.3 million Valeant shares on Thursday, after Valeant failed to repay
$100m of loans that Goldman had called in.
SOURCES:BloombergBusiness,TheFinancialTimes

17

Heads of Sector Summaries

Industrials Kenneth Kan
There have been dramatic changes in UKs telecoms sector recently.BT claimed to re-enter UKs mobile
market, followed by its 12.5bn acquisition of EE. Only in few weeks time, Hong Kong billionaire Li Kashings CK Hutchison Holdings Ltd announced its purchase of O2 from Telefonica for 10.25bn. The case
is currently being finalised for submission to European competition watchdogs next month. The formation
of this UKs largest mobile telecoms group with over 33 million users resolves the situation that O2 was being crushed by BT and Vodafone. CK Hutchinson has recently completed its merger of its subsidiary Three
Italia with Wind Group under Russian telecom firm VimpelCom Ltd. The combination dominates Italian
mobile business with over 55% market share. Canning Fok, Director at CK Hutchinson, also revealed that if
the takeover is given approval, the merged entity could be floated on the stock exchange, marking the first
time O2 has traded as a public company since being taken over by Telefonica more than ten years ago.
The performance of US industrials stocks has taken a beating in 2015, with a return of -2.83% year-to-date,
compared to a 0.96% return on the S&P 500 across the same period. Ultimately the slight underperformance in industrials boils down to weakening manufacturing worldwide, most notably in the US and China.
The Federal Reserve industrial production monthly index fell 0.2% in September, with its biggest component of manufacturing production falling 0.1% over the same period. Slowing economic growth in China and
other overseas economies, coupled with a strengthening dollar making US exports more expensive, has led
demand for US manufactured goods to fall. On the supply side, industrial production in the US itself has
decreased, with signs of under-utilization of manufacturing capacity. The Federal Reserve reported capacity
utilization had fallen to 77.5% in September, a far cry from pre-2008 levels of above 80%.
Despite all the negative macroeconomic factors impacting the sector, it continues to see healthy global M&A
activity, although both deal value and volume declined in 3Q15 compared to the previous quarter. Companies appear to overlook weakening manufacturing activity and economic pessimism, and pursue strategic acquisitions in order to re-align their business portfolios to high-growth areas and markets. We are also seeing
large investments in next wave manufacturing technology and restructuring to suit core business competencies.
The industrials sector could pick up steam in the near to medium term as China implements monetary policies to stimulate economic growth, and domestic consumer spending fuels a steadily expanding US economy. In addition, companies that stocked up on inventories at the start of the year could exhaust their stockpiles soon, and the ensuing rebuilding phase could stimulate US
manufacturing. In fact, US industrials stocks have been rising
steadily since a bear market in the
summer, with the Dow Jones Industrials Average rising to 17,910
as of 6 November, from a 12month low of 15,666 in late August. The outlook for the sector
remains optimistic.
SOURCES:BloombergBusiness,
TheFinancialTimesandBBC
News
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Head of Sector Summaries

Oil & Gas Taran Patel

When I last wrote about the state of the oil and gas industry, I built up a bleak and generally unpleasant picture. I am afraid to say that despite moments during which Brent Crude rallied promisingly, October and the
first ten days or so of November have been extremely underwhelming for oil prices. With Brent Crude trading at 45.63 USD bbl (Bloomberg Business), who can blame investors aversion to oil and gas stocks? Quite
simply, investing in this industry requires courage. The most interesting question is whether that courage is
inspired or misguided. There are many, who are bracing themselves for these low oil prices to linger into
2016. There are others, who do not believe that we have even seen the end of the red for the price of Brent
Crude. Shale stockpiles in the US, a significant nuclear agreement and concerning third-quarter earnings reports are pushing investors in oil and gas firms to throw these shares overboard in order to keep their portfolios afloat!
Sure, check the price of Brent Crude right now and you will flinch. However, opinion is divided upon where
it will be six, nine or twelve months from now. The courageous individuals, who are holding onto their oil
and gas shares, are the investors who will profit from any potential oil price rally next year, with inefficient
US shale companies struggling to keep out of bankruptcy.
Of course, October has been a tough month for oil and gas companies, releasing earnings reports that spell a
worrying story for shareholders, whose reaction to sell as quickly as possible is understandable. Meanwhile,
those investors, who have remained in the industry and suffered many a trick in October, may be in for an
overdue treat come Halloween 2016.
SOURCES:BloombergBusiness,TheFinancialTimes,wired.co.uk,shu erstock.com

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Heads of Sector Summaries

Telecoms Xiaohan Zhang
The overall performance by the Telecoms Sector for the past month was great. Europe 600 Telecommunications has gone up by 9% for the past month since Sept 13th. SPDR S&P International Telecommunications Sector ETF has grown by 8.09% for the same period.
Recent sector highlights include: Altice, the multinational cable group controlled by serial dealmaker Patrick
Drahi, has agreed a deal to buy New York- based Cablevision for $17.7bn including debt. It is the second
largest acquisition in the US in the past four months. On Oct 15th, Chinese stocks rose to an eight-week high
as a government plan to reorganize the telecom industry raised speculation policy makers will accelerate reforms of state-owned companies to stem slowing economic growth. The Shanghai Composite Index climbed
2.3% to 3,338.07 at the close, the highest level since Aug 21st. China United Network Communications Ltd.
and China Mobile Ltd. gained at least 2.7% after the government injected $36 billion of network assets such
as base stations into a new company called China Tower Corp.
It has not been an easy month for the UKs broadband giant
Talktalk. Its share price slumped by 10% since Oct 23th due to a
cyber attack which causes 157000 customers personal details have
been accessed. The potential loss is estimated to be around 35mn.
In Asian, the biggest telecoms company Singtel has faced low profitability issue. Based in Singapore with most of its money generated
from elsewhere leaving it particularly vulnerable.
Other developments include: Vivendi, the French media group, has raised its stake in Telecom Italia tightening its grip over the Italian telecom operator as it seeks to secure new distribution channels for its video and
music products. The Paris-based company now owns 19.9% of Italys biggest mobile and fixed-line operator,
lifting its holding from 14.9% after buying shares on the open market. T-Mobile US is planning to allow customers to stream video from services such as Netflix, HBO Go and Hulu without eating into their data allowances, as the fast-growing wireless carrier continues to try to differentiate itself from its larger rivals.
SOURCES:SPDRwebsite,BloombergBusiness,TheFinancialTimesandBBCnews

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Head of Sector Summaries

Consumer Services Maximilian Niroomand
Looking back on activities in the service sector over the past 3 months gives an overall very
positive image of the development and future perspectives of the sector. Newspaper and finance magazines headlines with titles as service sector is on fire, manufacturing down, services up and others were common for a reason. The sector accounting for 2/3 of the global
economic activity grew again, reaching 3 month high values in October in several economically very important countries like China or the U.S.. This might be a consequence following
the overall trend in the world towards a bigger service sector in the macroeconomic view of a
countries economy. Not only in America and Asia did the service sector grow, but did so too
in the UK for example where the service PMI, an index evaluating the position of service sector companies in overall market based on surveys in companies rose to 59,1 in October, one
of the highest values this year. PMI in China developed equally well, reaching a value of 54
which equals the value before the financial crisis in summer. The relevance of the service sector in the development of a country becomes apparent when taking into account that countries like Ethiopia plan to invest a significant higher amount of money into their service sector, taking this money from agriculture and industry. This supports the trend leading to the
service sector being 5 times bigger than manufacturing globally seen.
In the service sector, the best subsectors in the past months were Education & Training,
Customer Services and Shipping as well as Lodging. On the other hand, the worst performers were Trucking, Music & Video stores and Auto part stores. Some of the most
successful stocks in the short-term were Intersection Inc. and Diana Containerships, small
companies with temporarily success. In the longer term, meaning 3 months rather than 3
weeks here, major airlines were the most successful subsector in services, probably due to low
oil prices and seasonality.
A key risk in the service sector could be the high expectations in it that might not be
fulfilled, which would lead to
a slow-down in the economy
and financial problems for
the companies. Analysts say
one reason for the strong dollar is the positive trend in the
service sector which could in
the near future provide a
problem for the service sector companies from the U.S.,
slowing down their growth.
SOURCES:UKBusinessInsider,WallStreetJournal,EthiopianGov.Report,TheStreet.com
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Heads of Sector Summaries

Financial Services Kenrick Tan
In the coming week, the minutes of the Fed's October meeting will be released on Wednesday. There were talks about a December rate hike, and this report will shed more light on
this matter. There were great results posted in October on the job numbers, with 271,000
jobs added across multiple sectors. The unemployment rate has also reduced to 5%, showing
that employment growth continues steadily. Looking at these positive results, Octobers
strong data should lead the Fed to modestly raise short-term rates, says Morningstars Roland
Czerniawski.
In terms of investment strategy, investors are returning to euro-denominated money market
funds, even though these offer negative interest rates due to the European Central Banks
bond-buying programme. There was a huge outflow from these investment vehicles in the
first 2 quarters due to negative interest rates. However, there is an inflow of demand for these
vehicles now, due to the market stress over the summer. Fund managers used to offer fee
waivers to investors when rates initially went negative, but have stopped as such negative rates
seem to persist. This prompts companies to revaluate their risk appetite and calculate shortterm liquidity more accurately.
In the US, banks are also facing pressure on physical commodities as they are forced to hold
large amount of new capital cushions under the Federal Reserve plans to hedge against disasters. This serves as a means to dissuade banks from risky investments that could threaten
their investments due to a catastrophe, such as a massive oil spill or gas explosions.

SOURCES:FinancialTime,Morningstar

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The Industry

Types of Internship
Graduate Program generally range in length from one to three years and may include rotational or fixed roles
within a specific department. The benefits of a graduate program include a supportive environment, an opportunity to work in a number of different roles during a rotational schedule, on-the-job training and mentoring and an emphasis on learning and development.
Who can apply? Most programs will require the applicant to have completed their degree within the previous
two years to be eligible.

Summer internship is a ten-week program designed to fully immerse you in the day-today activities of one of
our divisions. The program s usually start with a firm wide orientation where youll learn about our culture, as
well as the benefits and responsibility. Internships of being a member of the organisation. You will also receive division-specific training designed to help you succeed in your division.
After training, you will receive real responsibilities to give you a sense of what you would be doing, day to
day, as a full-time employee. Along with fellow interns, you will work alongside leaders within our industry.
Successful Summer Analysts may be invited back to join a New Analyst program in a full time position.
Who can apply? The summer analyst role is usually for candidates currently pursuing a college or university
degree and is usually undertaken during the second or penultimate year of study. While your discipline or
major are not important, they look for students with an outstanding record of academic achievement and an
interest in the financial markets.

Spring Insight week is a structured programme combining practical workshops and business presentations
with social events and networking opportunities. Youll meet people from across the bank, learn about what
different areas do and how you might fit into our organisation.
Who can apply? Students from all degree disciplines, in the first year of a three-year degree or the second
year of a four-year degree, are welcome to apply.

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Previous Interns Advice

Interns Advice Having Completed 2 Summer Internships & 3 Week Insights

Most banks recruit on a rolling basis so I would advise applying early to give you the best chance. Ensure
that your CV and cover letter are both 1 page, the mergersandinquisitions website has a good article on this
as well as others on the various divisions. For the cover letter roughly 400-450 words I personal find works
the best, but this could vary as being concise is more important than making nothing points. In the cover
letter you should address: why that company, why that division and why youll be a good candidate for that
division/role.
After you have sent off an online application, most banks will invite you to take online tests. The most common are numerical, verbal, logic and situational judgment tests (SJTs). The questions are really simple and
easy, but very time pressured so being familiar with the style of questions (quite repetitive) helps. For example, the numerical test is mostly reading graphs and tables before manipulating ratios and percentages to answer multiple choice questions. So I would highly recommend practising online until you are proficient within the time constraint; through ICFS you have free access to practise tests.
You have to find the balance between fewer, better quality applications and lower quality ones that result
from applying to everything under the Sun. In the future, try to get most of your research, application preparation such as a good CV etc, done before you go back to Imperial; as university work should be your priority.
Personally I found this the hardest; you need to ask yourself what you actually like. "Finance" and even
Banking have many different areas and potential career paths, which one is right for you? The earlier you
get a rough idea of what you are interested in the easier your life will be, as this allows you to focus your
Spring Weeks, Summer Internships, employer presentations, independent reading etc. in these areas.
Basic knowledge and understanding is essential. And yes, you will even start to use those many acronyms!
This is a gradual process starting from basics like supply & demand, how interest works, what all the headlines in the FT (financial times) mean, what the different divisions are and what they do (DCM, ECM, S&T,
M&A, tech, compliance etc). I found Investopedia and the Wall Street Oasis very useful and for people with
no experience Jake's City Career Series IB Handbook is quite good at laying out the basics. One thing that a
lot of people dont know about is that through Imperial you have a free subscription to the online FT; this
will help you keep up to date with the news as well as helping improve your commercial awareness.
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Previous Interns Advice

Then there is the other side of an interview, ensure you have a variety of examples ready where you have
demonstrated various skills and competencies as well as answers for why X division and why ABC firm.
Have your story and your motivations prepared and know your CV inside out by going over the experiences
that you have mentioned so you will be confident talking someone through your CV. Follow up after the interview and obviously follow city etiquette in turns of your attire.
For an assessment centre you should do the same preparation as you would for an interview. Follow the
markets and news throughout the week, ask intelligent questions, be friendly/polite/respectful to your peers
(people who think they know everything about finance dont generally get offers). Be prepared to make a lot
of small talk with your peers but when in group activities make sure what you say actually adds values so people listen.
Banking is a people industry. 'Networking' sounded big and scary the first time I heard it, but it's really not.
Basically get to know each other, like each other and then help each other, just at this stage a student can't
really help an MD much apart offering a good chat over a coffee and an interesting point of view. That 'help'
can be a coffee met where they offer you some tips or even just an email.
Lastly, be confident. You are at one of the worlds best universities so you must have done well to get here.
Enjoy your insights, listen & learn, build your network (both peers and employees) and good luck! Make
sure you utilise the investment society to the full. The society has a lot to offer and you will be surrounded by
likeminded individuals with a variety of experience who youll be able to learn from and talk through ideas
with; many of whom youll likely met later on in your career. I hope this was helpful and I look forward to
meeting many of you every Tuesday!

An investment in knowledge pays the best interest.

Benjamin Franklin
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Useful Websites
Through Imperial you get a free online
subscription to the FT. Use this to view articles but also use this to sign up the FirstFT,
(select your preferences), and get a summary of the daily news emailed to you.

For fortnightly summaries of the financial environment, take a look

at the Opening City Doors Website as well as condensed 101
facts about bonds and equites.

Whilst on the Imperial network you can access The Economist to

gain a deeper understanding of political and economical events.

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Do you need some guidance on how to write your resume or CV and cover letter, how to
prepare for interviews, and the proper way to respond to a job offer? Read our useful tips to
help you put your best foot forward:
Make a Good First Impression
Make a good first impression by looking like you already work here from arriving in business attire, to
greeting each of your interviewers with a professional and friendly greeting. See what our recruiters look for
in our candidates.

Follow Up
A crucial part of any interview is the impression you leave on the interviewer at the end. Youll do this by
asking relevant questions that show your aptitude for and interest in the job, and following up with thanks
and affirmation that youre ready to explore next steps.

Final Advice:
If there are any points in your resume or CV that you cant speak about persuasively and
knowledgeably in an interview, leave them off.
Do a mock interview with a friend or adviser, who can give you an honest assessment of your composure and ability to deliver information. You met a challenge, solved a problem, worked collaboratively
or initiated a project. Be prepared to give real examples of how you met a challenge, solved a problem,
worked collaboratively or initiated a project.
Articulate the benefit you brought to the project or your team
Be honest about your contributions and abilities
Relax and be yourself. The interviewer wants to make the best match possible for the firm and you.
The more he or she sees of you, the richer the conversation----and the results--will be.
The Offer
Should you receive an offer, youll want to inquire about timing, reporting structure, and other initial
expectations. You may also want to ask additional questions about the culture of working at Credit
Suisse. These are all discussions you may initiate with recruiters, alumni or others working in the sector.
Should you be fortunate enough to have more than one offer, its good protocol to make a decision as
soon as possible so that the bank(s) may consider other candidates.

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Your network is your net worth.

Connect with ICIS:

union.ic.ac.uk/scc/investmentsociety/
facebook.com/ic.investmentsociety
icu.investmentsociety@imperial.ac.uk
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