The Structure of the Equity Research Report

Advanced Company Valuation U Uppsala l U University i it Department of Business Studies

Copyright 2005, Joachim Landstrm. All rights reserved

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The equity research report template

Highlights Investment summary y Valuation Business description Other headings Industry description and competitive position Historical financial analysis Estimates Investment risks Disclosures

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Highlights section

Tells the reader why y they y should read the report. p 1-2 sentences per bullet. Be clear and concise. Make a longer statement about your recommendation. Make assertions that back up your recommendation. Leave support of assertions to the body of report.

Investment summary section

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Valuation section

Used to j justify yy your p price target g Each of the models that you use should be presented. Do not reiterate textbook material. You should instead read professional report available on the website and ponder how they wrote it. Then do something similar. Risks to the price target should be included (NASD, Rule 2711: h.7)
Incorporated as a sensitivity analysis of the valuation based on ERP, RNOA et cetera. See also slide # 9 on investment risk.

Copyright 2005, Joachim Landstrm. All rights reserved

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Business description section

Describe business, products, finances, and strategy of company (see also slide # 7) company. Relative importance of segments and products. Highlight important assets or liabilities. Special situations/earnings interruptions

M&As Restructurings effects/pay back expectations Discontinued operations Operating: fixed v variable costs

Where Wh i th is the leverage? l ?

Value added How to manage downturn

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Other headings

Use to make p points that do not fit in the rest of the report p Contains for example:
Cost of capital calculations. Dilution of shares analysis. Large insider holdings, et cetera.

Copyright 2005, Joachim Landstrm. All rights reserved

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Industry description and competitive position section

Describe the industry

Where in cycle does industry excel How has it performed in previous cycles Cyclical, Continuous growth Industry Maturity Effects of recession/ slow recovery

Who are the competitors Describe how the company fits into the industry What are the factors that affects the company the most e a d Environment o e t Demand

Forces affecting the industry

Elasticity of Demand Speed of Product Innovation Rate of growth

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Historical financial analysis

Must be ratio based using a bottoms-up using the DuPont and the leverage formulas formulas. Historical and comparison with industry.
How as the company performed and how well in comparison with industry.

Operating Perfomance
Analyze the company using the DuPont formula Discuss significant components of PM and ATO

Financial Performance
Analysis of NBC and its components.

Total Performance
Analyze the company using the leverage formula.

See also slide # 5 on the topic of leverage.

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Estimates section Must be ratio based following leverage and DuPont-formula. The analysis of the future should be done relating the company to its peers in the industry. Short run Operating Perfomance
Analyze the companys future using the DuPont formula Discuss significant components of PM and ATO. Justify the assumptions.

Short run Financial Performance

Analysis of future NBC and its components. Justify the assumptions

Short run Total Performance

Analyze the companys future using the leverage formula. Justify the assumptions.

Long-run Performance
Analysis of the horizon assumptions such as long-run profitability, growth, l-r borrowing cost, et cetera.

See also slide # 5 on the topic of leverage.

Copyright 2005, Joachim Landstrm. All rights reserved

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Template sections
Investment risk section

Business risk/Financial risk Disclose risks to your recommendation

What would make you change your outlook for this company?

Be specific and describe why they are risks Legalese Make adjustments such that direct ownership or material conflicts of interest are explicitly exposed.

Disclosures section

Copyright 2005, Joachim Landstrm. All rights reserved