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The Structure of the Equity Research Report

Advanced Company Valuation
U l U i it
Copyright 2005, J oachimLandstrm. All rights reserved
Uppsala University
Department of Business Studies
L0- 2
The equity research report template
Highlights
Investment summary
Historical financial
analysis
y
Valuation
Business description
Other headings
Industry description and
competitive position
Estimates
Investment risks
Disclosures
Copyright 2005, J oachim Landstrm. All rights reserved
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L0- 3
Template sections
Highlights section
Tells the reader why they should read the report. y y p
1-2 sentences per bullet.
Be clear and concise.
Investment summary section
Make a longer statement about your recommendation.
Make assertions that back up your recommendation.
Copyright 2005, J oachim Landstrm. All rights reserved
Leave support of assertions to the body of report.
L0- 4
Template sections
Valuation section
Used to justify your price target j y y p 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
Copyright 2005, J oachim Landstrm. All rights reserved
2711: h.7)
Incorporated as a sensitivity analysis of the valuation based
on ERP, RNOA et cetera.
See also slide #9 on investment risk.
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L0- 5
Business description section
Describe business, products, finances, and strategy of
company (see also slide #7) company. (see also slide #7)
Relative importance of segments and products.
Highlight important assets or liabilities.
Special situations/earnings interruptions
M&As
Restructurings effects/pay back expectations
Discontinued operations
Wh i th l ?
Copyright 2005, J oachim Landstrm. All rights reserved
Where is the leverage?
Operating: fixed v variable costs
Value added
How to manage downturn
L0- 6
Template sections
Other headings
Use to make points that do not fit in the rest of the report p p
Contains for example:
Cost of capital calculations.
Dilution of shares analysis.
Large insider holdings, et cetera.
Copyright 2005, J oachim Landstrm. All rights reserved
4
L0- 7
Industry description and
competitive position section
Describe the industry
Where in cycle does
Who are the competitors
Describe how the
industry excel
How has it performed in
previous cycles
Cyclical, Continuous
growth
Industry Maturity
Effects of recession/ slow
company fits into the
industry
What are the factors that
affects the company the
most
Demand Environment
Copyright 2005, J oachim Landstrm. All rights reserved
recovery
Forces affecting the
industry
e a d o e t
Elasticity of Demand
Speed of Product
Innovation
Rate of growth
L0- 8
Template sections
Historical financial analysis
Must be ratio based using a bottoms-up using the DuPont
and the leverage formulas and the leverage 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
Copyright 2005, J oachim Landstrm. All rights reserved
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.
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L0- 9
Template sections
Estimates section
Must be ratio based following leverage and DuPont-formula.
The analysis of the future shouldbe done relating the companyto 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 runTotal Performance
Copyright 2005, J oachim Landstrm. All rights reserved
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.
L0- 10
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
Disclosures section
Legalese
Copyright 2005, J oachim Landstrm. All rights reserved
Legalese
Make adjustments such that direct ownership or material
conflicts of interest are explicitly exposed.