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

L0- 2

The equity research report template

Highlights Historical financial

Investment summaryy analysis
Valuation Estimates
Business description Investment risks
Other headings Disclosures
Industry description and
competitive position

Copyright 2005, Joachim Landstrm. All rights reserved

1
L0- 3

Template sections

Highlights section
Tells the reader why
y theyy should read the report.
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.
Leave support of assertions to the body of report.

Copyright 2005, Joachim Landstrm. All rights reserved

L0- 4

Template sections

Valuation section
Used to jjustify
y yyour 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

2
L0- 5

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
Where
Wh i th
is the leverage?
l ?
Operating: fixed v variable costs
Value added
How to manage downturn

Copyright 2005, Joachim Landstrm. All rights reserved

L0- 6

Template sections

Other headings
Use to make ppoints 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

3
L0- 7
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
Forces affecting the
industry
Who are the competitors
Describe how the
company fits into the
industry
What are the factors that
affects the company the
most
Demand
e a d Environment
o e t
Elasticity of Demand
Speed of Product
Innovation
Rate of growth

Copyright 2005, Joachim Landstrm. All rights reserved

L0- 8

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

4
 L0- 9

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

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
Make adjustments such that direct ownership or material
conflicts of interest are explicitly exposed.

Copyright 2005, Joachim Landstrm. All rights reserved