Acknowledgements Table of Contents

Editors in Chief: Sam Pham, Julie Zhu, Sharon Ho

Authors: Designers: 1. Introduction 4. Example Pitch: Ooh!

Nicholas Lee
Jerry Li
Mia Cresswell
Leo Shu
UNIT Chapters: About Stock Pitching 5 Media (ASX:OML)
Why Learn to Pitch a Stock? 6
Roland Huang Nicholas Lee Investment Philosophy 7 Executive Summary 31
Wei Wang Wei Wang Industry Overview 32
Xenia Lopes Xenia Lopes Business Overview 34
Investment Thesis 36
Josh Rizk Kevin Lu Catalysts 39
Alick Song Winnie Zhang
2. Idea Generation
Valuation 40
Investment Risks 42

Investable Universe 9
Software: Adobe Indesign, Adobe Illustrator, Adobe Photoshop Screening 10

© University Network for Investing & Trading 2018

Preliminary Research
Following Market News
12
13 5. Student
This guide was printed with funding from the University of Sydney
Opportunities
Business School. USYD Student Managed 44

3. Stock Pitch
Investment Fund
Special Thanks: Careers and Employability Office
Components
Australian Students 45
Asset Management

Disclaimer Pitch Overview

Industry Overview
Business Overview
15
16
18
Investment Thesis 20
1. The information in this free guide is provided for the purpose of education and Catalysts 23
intended to be of a factual and objective nature only. The University Network for Valuation 25
Investing and Trading (“UNIT”) makes no recommendations or opinions about any Investment Risks 28
particular financial product or class thereof.

2. UNIT has monitored the quality of the information provided in this guide. However,
UNIT does not make any representations or warranty about the accuracy, reliability,
currency or completeness of any material contained in this guide.

3. Whilst UNIT has made the effort to ensure the information in this guide was accurate
and up-to-date at the time of the publication of this guide, you should exercise your
own independent skill, judgement and research before relying on it. This guide is not a
substitute for independent professional advice and you should obtain any appropriate
professional advice relevant to your particular circumstances.

4. References to other organisations are provided for your convenience. UNIT makes no
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5. In some cases, the information in this guide may incorporate or summarise views,
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6. UNIT takes no responsibility for any loss resulting from any action taken or reliance
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2 | UNIT UNIT | 3
 About Stock Pitching
What is it?
A stock pitch is essentially a summary of a potential investment idea into a stock. It should
recommend a position which an investor should take in the stock and why.

The defining aspect of an effective stock pitch is extensive research into all aspects of the company.
This research will be critical in justifying your argument as to which position a potential investor
should take in the stock. While a stock pitch cannot practically cover every aspect of your company
or its respective industry, it is nevertheless critical that you, the pitcher, know the company and its
broader context inside out.

Positions you can take to “grow” your portfolio

Position 1: Short
This is a recommendation to sell the stock because the
price is expected to fall. This can be done by borrowing
the stock from another investor.

Position 2: Hold
This is the recommendation to neither buy nor sell the stock. Investors with an
existing long position in the stock should not sell, while those without a holding
should not purchase the stock either.

Position 3: Long
This is a recommendation to buy the stock as its price is expected to increase in the future, generating
a profit for the investor.

Top tips
Remember that a pitch is not just the presentation, Keep in mind what the purpose of a stock
but also includes the responses to the questions from pitch is! Stock pitches aim to:
potential investors.
Question time

Purpose
1 Inform the audience of the
It is essential that you can respond to any issues or
investment opportunity
problems which investors may take notice of in order
to successfully sell your recommendation to them.
2 Convince the audience to invest
Failing to do so will result in an unconvincing pitch.

4 | UNIT UNIT | 5
 Why Learn to Pitch a Stock?
Personal Investing
Issue:
Many first-time or early investors often choose their
investments in an ad-hoc manner, with little basis for their
decisions other than a tip from a mate or a throwaway
Stock pitching allows you to develop valuable skills,
comment in a newspaper article. It goes without saying
regardless of your discipline of work:
that this is a foolish endeavour and a sure-fire way to lose
money.
Solution:
By learning to structure a stock pitch, you will be able to:
1 Formalise your investment process
Understand how and why an investment
2 gives them clear guidelines into what the fund should or should not be doing, and holds the fund accountable.
performs well or poorly
Have succinct and researched reasons for mak-
3 balance sheets, profit and loss statements and
ing an investment decision
Have something to fall back on and test when
4
times get rough
5 Clearly recognise the risks of your investment
Competitions
Learning the fundamental components of stock pitches
is also highly valuable for stock pitch competitions
which are run throughout the year. Having a clear idea
of the structure already puts you one step ahead of the
competition.
About Stock Pitch Competitions:
Pitching in competitions is all about persuasiveness, and
whilst it is still important to demonstrate a fundamental
understanding of the structure of a stock pitch, the
objective is to persuade the audience to invest in the
pitched stock.
These are generally long-form pitches, with the support
of Powerpoint presentations and visual aids, and can
last anywhere from a few minutes to half an hour. Here,
all knowledge of industry trends, the business model,
the competitive landscape, valuations and calculations,
analysis of risks should be included to convince the
investor of the attractiveness of the pitched idea.
6 | UNIT
Investment Philosophy
What is it?
An investment philosophy is a series of statements that underpin a fund’s overall investment
strategy, operations, and research. It is an overarching set of principles that guide an investor’s
Skill Development decision making.
Why do you need one?
You will develop your resourcefulness in
1 An investment philosophy is imperative for an investor because it gives clear direction and guidance to your thinking.
conducting, digesting and analysing
research With so many asset classes, countries, sectors, and stocks to choose from, you need to have a starting point.
Improve your communication skills as you Do you purchase a speculative stock or an undervalued one?
2 are required to communicate the nuances of Do you look for short-term trades or long term holds?
complex businesses and industries in both
written and presentation forms From a professional perspective, it helps clients of a fund manager understand how the fund is allocating their money,
Strengthen your technical ability and
3 attention to detail as it is needed to evaluate
Components
perform valuations
Interviews
There are three key factors for an effective investment philosophy:
Investment philosophies begin with a view of how human beings
Whether you’re interested in asset management, markets 1 learn, or fail to learn
or investment banking, there’s a high likelihood that you
will be faced with the ‘Pitch me a stock’ question during
an interview. Without preparing a previous pitch, it will
be very difficult for you to produce a substantial, well- 2 This leads to a view of how markets behave
researched answer. Even if you do have a company in
mind, not having a clear structure is likely to lose the
interviewer as you continue to ramble on.
3 Devise strategies that reflect your beliefs
About Interview Pitches:
Typically, these are short-form pitches, ranging from 30
seconds to a few minutes of pitching time.
Examples
In an interview, it is key to demonstrate a strong
understanding of the company and present a thoughtful
thesis. Concision is key in interviews; spend only a Philosophy Strategy
few sentences on each component of the stock pitch,
summarising all significant information.
Investors underestimate the rate and duration of growth GROWTH
Investors are irrational, driven by emotion, and this causes
stock prices to deviate from their fundamental value
VALUE
Smaller businesses are misunderstood by investors SMALL CAPS
UNIT | 7
 Investable Universe
What is it?

There are a multitude of markets and investment opportunities

that we can choose from.

Your investable universe is defined by a

personalised set of criteria.

This criteria is framed within the boundaries that YOU define!

These may include: personal preferences, risk aversion,
investment philosophy.

Filters
Industry
A starting point may be deciding which GICS (Global Industry Classification
Standard) sectors suit your preferences for volatility and/or market capitalisation.
For example, sectors such as Information Technology are likely to produce
relatively high returns at the expense of bearing greater risks.

To refine your selections of the desired GICS sectors, you may also choose to
exclude specific companies or groups of companies displaying certain types of
characteristics.

Interviews Market Capitalisation

Market capitalisation is described as the market value of a company’s equity based on the
number of outstanding shares and its share price. One should be cautious in associating a
company’s market capitalisation with its current or future performance. These companies
are often well-known and understood by the market and are subsequently highly sensitive
to market expectations.

Volatility
This leads us to consider the volatility of an industry to market movements. High
volatility levels tend to generate high returns albeit with a greater likelihood of
actual returns differing from expected returns. Your choice of volatility will rest
entirely on your risk preferences and investment philosophy.

8 | UNIT UNIT | 9
 Screening Quantitative Screening

What is it? Quantitative stock screening involves choosing key metrics, and using them to filter stocks.

Note: This stock screening stage is influenced by your investment philosophy & it may also be useful to develop a
Stock screening is a way for you to start to narrow your ideas from the investable universe down screen which tracks these metrics over time.
to a series of stocks you can perform deeper analysis on. There are two main forms of screening:
Quantitative and Qualitative.

Key Screening Metrics

Qualitative Screening
Idea generation can simply come from noticing a retail store being busier than usual, or noticing more news coverage
on a certain company - this is known as qualitative screening. Price to earnings (P/E)
Earnings per share (EPS)

Macroeconomic Market capitalisation

The level of sensitivity of stocks to these macroeconomic Dividend yield

factors such as interest rates, inflation, investment,
consumption ought to be considered. Return on investment (ROI)

E.g. A financial stock which relies on mortgage lending

will be highly sensitive to interest rate changes.
Price to book (P/B)

Geographic
Regional constraints or opportunities for growth
may be essential for a company’s success or could be the
ingredient of its downfall.

E.g. Australian import-export company will experience

growth when there are indicators suggesting increased
demand of commodities from Chinese consumers.

Example of initial screening

Thematic Ticker EV/EBITDA P/E ROE EBITDA Margin Revenue Growth Score Rank

Weighting 25% 15% 30% 20% 10% N/A N/A

Thematic factors, as the name suggests, relate to themes
trending or emerging in the domestic or global
Stock 1 8.6x 20.4x 35% 25.1% 8.3% 9.2 2
economy. However, these market/industry trends may
also lead to speculative bubbles and herding behaviour.
Stock 2 15.2x 30.3x 30% 35.5% 15.6% 12.3 1
E.g. Chipmaker companies may benefit from break-
throughs in artificial intelligence.
Stock 3 6.7x 12.5x 10% 13.3% 3.2% 8.5 3

10 | UNIT UNIT | 11
 Preliminary Research Following Market News
What now? What now?
If you want to fully understand impactful market trends and narrow your investment approach,
You have now refined your investable universe and completed the screening process based
arguably the best approach is to follow market news consistently and gather as much information as
on quantitative and qualitative information. With a laundry list of investment ideas in mind, you
possible from multiple sources.
need to now dig deeper and conduct preliminary research to isolate the most viable
investment idea.
However an investor is usually unable to generate returns purely based on public information from
the sources discussed below - they could be already factored into the stock prices. The question
therefore becomes whether market prices fully reflect this information or has the market under /
Before you launch into investing, you should... overappreciated it?

Conduct Peer Analysis Key question: Do market prices fully reflect this news?
How does the company compare
with others within the same industry?
Comparable valuations?
Local Newspapers
E.g. Sydney Morning Herald,
Monitor Corporate News The Australian
Question the Screening
Why does the company screen Has there been any recent corporate
Financial Newspapers
highly during the screening process? news? (M&A, capital raisings, Online News Forum
Is the company’s qualitative and management changes, capital E.g. AFR, Bloomberg,
quantitative history temporary or restructuring etc.) E.g. Hotcopper The Financial Times
sustainable?

Risk / Return Comparison

How does the risk and return profile
Portfolio Consideration
of each idea stack up against each Economic Information Financial Results
other?
How would the investment affect E.g. Changes in interest E.g. Earnings results,
overall portfolio characteristics and rate policy, exchange rate trading updates, dividends
diversification? changes, commodity prices

Corporate Activity Industry Information

E.g. Management changes, E.g. Megatrends, M&A activity,
capital raisings, legal changes in competitive
proceedings landscape, data releases

Political Information
E.g. Changes in fiscal policy,
election results, international
trade agreements, regulatory
changes

12 | UNIT UNIT | 13
 Pitch Overview
Executive Summary
Recommendation

Why are you making the recommendation?

Target Price

Industry Overview
Describes aspects such as the market structure and
who the significant firms in the industry are, the trends
of the industry, and competitive landscape

Business Overview
Describe the key value propositions, activities, and
structure of the business

Describe where the firm is in the market

Give an overview of its capital structure and any other

prominent aspects of the firm

Describe any significant recent events or changes in

the business model

Investment Thesis
Explain why you are suggesting either a buy, sell, or
hold recommendation

Usually three reasons as to why the stock is currently

mispriced

Catalyst
Describe upcoming informational events that should
explain when a share price rerating will likely occur -
they justify the ‘why now’

Such events could be macro or micro related.

Valuation
Justify how you reached your target price and the
underlying assumptions and forecasts

Outline the potential bull and bear scenarios

Investment Risks
Describe any risks that could cause your thesis to not
come to fruition

Outline any mitigating factors which reduce the

likelihood of these risks arising
14 | UNIT UNIT | 15
 Industry Overview Competitive Landscape

What is it? Market Position

Examine the role of each player in the industry, and look at their respective
An industry overview defines the type of industry which your selected company belongs to, and the strengths and weaknesses. This will help identify any opportunities for
major characteristics of that industry. These characteristics can be broken down into the industry’s consolidation and how the company can improve upon what other
products, competitive landscape, service offerings, and drivers and trends. competitors offer.

Source 1: Industry Reports
Industry reporters like IBISWorld specialise in
disseminating market research reports. The reports cover
recent industry performance, the competitive landscape,
the types of products / services produced, the major
companies and key metrics.
Market Power
Look at the strength of their brand name, as well as their market
share, location and size. This will assist in determining the type of
market structure which the company is operating in and the barriers
of entry.

Market Activity
Source 2: Industry Groups
Monitor the activity of major players, and assess whether the company
will be able to accordingly guard against, or leverage any opportunities
Numerous industry groups / organisations exist which provide extensive
which arise from movements made by other players.
information about their industry. The industry information which these
organisations provide can range from facts and figures to media releases
of industry players.

Source 3: Broker Reports

Drivers and Trends
Drivers and trends are used to gauge the general direction in which an industry is headed, and assists in estimating a
These reports are written by broker firms and analysts who interact with company’s future profitability.
management and competitors frequently. Their reports will likely contain very
extensive and unique insights into the landscape of the industry.

Macroeconomic - Level Industry - Level

Product and Source Offering Consider whether or not the industry Assessing the stage at which the
is cyclical, i.e. if profitability is sensitive industry stands at in its life
to the level of economic activity. You cycle - introduction, growth,
Product Differentiation may also look at macroeconomic maturity, or decline - is also very
drivers which influence a wide significant as sales and
How do the companies in the industry differentiate themselves? It may be variety of industries. This can profitability vary across the
through quality controls and premiumisation, cutting-edge technologies or brand image range from trade agreements and different phases. This may
and reputation. geopolitical events to changes in involve looking at the
population demographics, such as an tailwinds or structural challenges
Location ageing population. accelerating / restricting its growth.

Where are the industry’s main markets? Which are growing and which are stable
/ stagnating? Location is key for companies in reaching customers as well as offering
another avenue for differentiation.

Regulatory Drivers
Supply / Customer Base
Who does the industry sell to? Where does the industry source its inputs? The role of the government and regulation is also significant. Whilst rules and legislation are often adverse for companies
Answering these questions will allow for a better understanding of the industry’s cost as they can restrict business activity and impose tax, it should be noted that the regulatory environment can also be
base. supportive by, for example, providing grants or subsidies.

16 | UNIT UNIT | 17
 Business Overview Business Model
The business model should explain to investors how the company will generate revenue and profit and sell to inves-
tors where the value of the company is stemming from.

What is it?
A business overview should provide a concise summary of the most important aspects of the
company. This can be broadly separated into general information about the company and its
business model.

Source 1: Prospectus
A prospectus is a document which is disclosed prior to
an IPO. It will contain information on the company, its
operations, financial position and the risks associated with
the offer. This is often the ideal source for company and
industry information, provided it is not too outdated.

Source 2: Company Releases

The company’s website will usually provide annual reports which
contain financial statements, such as the income statement, balance
sheets, and cash flow statement.

Product Mix
Source 3: Databases Where companies are segmented into numerous business divisions, usually through
separate product or service lines, historical performance and percentage splits
Databases like Bloomberg, CapIQ and Factset provides concise summaries
should also be included. These identified streams can then be used to highlight what
on what each company does, as well as a stock analysis, which includes the
the primary growth drivers of a company are.
stock price, share price chart, company news, key statistics, fundamentals and
company profile.

Geographic Market
What to include?
For a business that operates on a global / national scale, it is also useful to identify
the key geographical markets in which it operates. This is often indicated on financial
statements, making it easier to trace historical performance that has been impacted
by regional trends.

General Information Recent Corporate News

General information includes, but is not limited
to, qualitative features such as the company’s
headquarters and key management, as well as more
quantitative factors, such as historical share price
performance and valuation metrics like P/E and
dividend yield.
Key Financials
An overview of the financials of the company would be a summary of the key
Recent corporate news include any announcements or
financial statements of the firm. This could include the historical revenue growth of
changes that can affect the price of the stock. These
the stock, key ratios from the balance sheet such as leverage or the debt/equity
can include M&A, profit guidance updates, changes to
ratio, or what the key cost drivers are. The financials shown will also depend on the
dividend policy or management changes.
stock being analysed - for example, the net interest margin is an influential ratio for
a bank.

18 | UNIT UNIT | 19
 Investment Thesis
Macroeconomic And Industry Tailwinds
What is it? Macroeconomic and industry tailwinds
refer to the forces and drivers which help
An investment thesis should explain why an investor should invest into the specific stock by stimulate the economy and industry as a
defining the value that the stock would add to a portfolio. The thesis should be motivated by the whole.
idea that the stock is currently mispriced, generally as a result of the market underappreciating or
The macroeconomic environment in which
having yet to factor in certain information into the share’s price. the company operates can provide top-
down support to your investment thesis by
While many reasons may potentially support and form the basis of an investment thesis, three helping drive the growth of your company.
common factors amongst many investment theses include sustainable competitive advantage,
macroeconomic and industry tailwinds and strategy / management.

Competitive Advantages
Competitive Advantages For example, expectations of falling interest rates may reduce borrowing costs for the company and allow them to take
advantage of a wider range of investment opportunities.

A competitive edge can be sourced from many different aspects of the company. Regardless of the nature of the
competitive edge, it should allow the company to outperform their competitors in the mid to long-term. Such
prospects of long-term growth and sustenance will add value to a company, which should be reflected in the share
price. Specific technologies may be able to increase the production scale within certain industries, whilst subsidies provided by
the government may allow certain industries to become more competitive.

Key Question: Can the competitive advantage be sustained?

Changes in consumer tastes and demographics may also open up opportunities which your company may intend to
exploit.
For example, a firm undertaking extensive research and development
may be able to create more innovative products with patents and
copyrights in place to help sustain this advantage.

Strategy and Management

Management styles are often based off past performance, i.e. the success of their previous strategies and how
management has handled different situations in the past.

Strategies can include mergers & acquisitions, new product development, and asset sales. Your investment thesis can be
supported if you believe that investors are underappreciating the actual value you expect the company’s strategies to
create.

A company may have a better revenue model or a more appropriate

capital structure that allows them to better leverage available
investment opportunities.

20 | UNIT UNIT | 21
 Investment Thesis Catalysts
How do mispricings arise? What are they?
However, identifying these thesis points is likely insufficient - many other investors are able to do Catalysts are any upcoming factors or informational events that you believe will propel the share
the same. It is your job as the stock-pitcher to identify the mispricing and this often requires price to rise (or fall for a sell pitch), thus justifying your investment thesis. The catalyst explains the
an understanding of behavioural biases because such mispricings often arise from irrational why now and is important to include as stocks can remain undervalued for a long period of time.
market behaviour. Such biases may for example, lead to underestimating of earnings growth or
overestimation of the impact of short term shocks. Information about the impact of these catalysts are not yet incorporated into the stock price and
so they provide an opportunity for investors to make significant gains in wealth. A catalyst can be
almost anything, and the four examples provided below include earnings reports, broker reports,
macroeconomic factors and, other company announcements.
Mispricings are often caused by Behavioural Biases
Earnings Reports
• Recent evidence is more compelling • Bellamy’s and Chinese
• Investors may focus too heavily on recent bad regulations Since investors have certain expectations regarding a company’s earnings prior to each release, earnings releases are
news and discount historical good news the key informational event which will either justify or fall short of these expectations. A ‘beat’ will likely lead to an
increase in share price whilst a ‘miss’ will do the opposite.
Short Termism
Note: Investors should also pay attention to the outlook statements in the earnings releases - a strong result followed by
a poor outlook statement / trading update may not be looked upon favourably.

• Dramatic evidence is more compelling • Entry of Amazon into Australian

• Investors focus too heavily on news / information market was overhyped
that is highly dramatised / publicised
Salience

• Mistaken belief that prior success will lead to • Domino’s high earnings growth
future success was expected to continue for
• Investors project historical growth too far into the many years
future
Hot Hand
Phenomenon

• There is lots of information available, which can be • Everyone knows lithium demand
Broker Reports
a lot to process is expected to skyrocket, but Some broker reports will provide a revised valuation of a stock’s value, whilst others may provide buy and sell recom-
• Investors tend to take shortcuts and are attracted the supply dynamics remain mendations for particular stocks. The release of these broker reports acts as a catalyst which can directly impact stock
to the ‘easy’ stories overlooked prices, especially if they involve a change in price target or recommendation.
Information
Overload

• New information is discounted • Nine News was disliked by the

• Investors unwilling to change their views on market for a long time despite
companies trends in TV media turning
Anchoring

22 | UNIT UNIT | 23
 Catalysts
Macroeconomic Data Releases
Given that macroeconomic factors relate to the overall economy, these factors can easily catalyse movements in
the stock market. For example, an indication of a potential hike in future interest rates is capable of moving the
entire market and thus causing a change in the price of the stock. However, macroeconomic factors should not
be viewed in isolation - it will also be useful to examine the flow-through effects of the relevant macroeconomic
factors.
Valuation
What is it?
Stock valuation involves calculating the true fair value at which the stock should be priced and
therefore determining whether the stock is currently under or overvalued. In performing this
calculation, your investment thesis should inform every assumption made regarding the company’s
earnings and risk profile. Valuation can be conducted using numerous methods, with the two main
ones being intrinsic and relative valuation.

Forecasting
Forecasting
To conduct your stock valuation, you’ll need to first forecast the
outlook of the company. This involves translating your qualitative
investment thesis arguments into quantitative forecasts. Usually,
these forecasts are made over a period of 5-10 years. This is because
forecasts made too far into the future are likely to be less accurate,
whilst too short of an investment horizon likely produces an
incomplete valuation.

Other Company Announcements

Intrinsic Valuation
Company announcements in general may also cause a shift in the market’s perception of a company and the
common catalysts include:

An intrinsic valuation prices a company’s shares according to its future cash flows, discounted back to the present
Trading Updates / Profit Guidance day using an appropriate risk-adjusted rate of return. This fair value of the stock is commonly derived through the
discounted cash flow (DCF) model, which uses forecasted free cash flows to the firm (FCFF) and an appropriate
discount rate, often the weighted average cost of capital (WACC).

1. Forecast Free Cash Flows

FCFF = EBIT (1 - t) + DA - CAPEX - Increase in Net Working Capital

EBIT = Earnings Before Interest and Tax

Merger / Acquisition / Divestment Activity Securing of New Contracts / Revenue DA = Depreciation and Amortization
CAPEX = Capital Expenditure
t = Company Tax Rate

2. Calculate Terminal Value

Terminal Multiple Terminal Growth Rate

Results of Tests / Regulatory & Legal Decisions The most common multiple used in calculating
terminal value is the EV/EBITDA multiple
estimated at the time of the terminal period.
Assumes that the last cash flow forecasted will
grow at a stable growth rate into perpetuity.
This growth rate can be approximated in a variety
of ways, such as using inflation or GDP growth
rate figures.

24 | UNIT UNIT | 25
 3. Apply Discount Rate Relative Valuation
You will then need to discount each year’s cash flow and the terminal value by the appropriate discount rate to find Relative valuation involves factoring in multiples, ratios, and benchmarks derived from similar companies in
their present value. determining the company’s share price. This aligns with the law of ‘one price’ as we are assuming that assets with
similar risk and returns characteristics should be priced similarly.
WACC = RE x (E/V) + RD x (D/V) x (1-t)

RE = Cost of Equity 1. Identify Your Comparable Set

RD = Cost of Debt
D = Total Debt Selection can be based on a variety of factors, such as industry, size, scale, and sector.
E = Market Value of Equity
V = D + E
t = Company Tax Rate
2. Identify Your Multiples
Discounted Cash Flow = FCFFX / (1+WACC) X

Identify the relevant multiples of each of your comparable firms. The most common multiples typically used in a
X = Forecast Year relative valuation are the Price / Earnings and the EV/EBITDA multiple.

Add all of these together to attain the enterprise value of the company.
Price / Earnings EV / EBITDA

The P/E multiple is defined as a share’s value (P) divided
by earnings per share (EPS).
4. Calculate Share Price
The biggest limitation of using the P/E multiple is that it
only reflects a firm’s bottom line and fails to consider tax
The market capitalisation of your company can then be calculated as the difference between its enterprise value and and interest rates, as well as methods of depreciation
net debt. and amortization, which often vary across different
companies and may distort company value.
Market Cap = EV - Net Debt
The EV/EBITDA multiple is defined as a company’s
total Enterprise Value (EV) divided by Earnings Before
Interest, Tax, Depreciation & Amortisation (EBITDA).
EV / EBITDA addresses the aforementioned limitation
of the P/E multiple as it is not affected by the differing
methods of depreciation and leverage across
companies.

You can then simply divide the market cap of your company by the number of shares outstanding to obtain your
final share price.

Share Price = Market Cap / Shares Outstanding

3. Apply the Peer Multiples
Compare this with the current market price per share to see if your share is overvalued, or undervalued!
Having chosen your desired multiples and comparable set, the median multiples of your set should then be
applied to your target company’s own earnings metrics.

Company EV/LTM EBITDA EV/NTM EBITDA Forward P/E Trailing P/E EV/LTM EV/NTM
Rev Rev
Company 1 16.0x 13.0x 22.5x 30.3x 6.0x 5.2x

Company 2 16.2x 14.5x 24.8x 28.1x 2.6x 2.5x

Company 3 9.4x 9.3x 17.6x 16.5x 2.3x 2.1x

Company 4 15.2x 9.8x 19.8x 0.0x 2.3x 2.2x

Company 5 10.0x 9.0x 16.5x 60.3x 3.2x 3.0x

Average 13.3x 11.1x 20.2x 27.1x 3.3x 3.0x

Median 15.2x 9.8x 19.8x 28.1x 2.6x 2.5x

Target Company 8.9x 9.0x 24.8x 4.6x 2.4x 2.4x

Implied Share Price $13.39 $12.42 $18.83 $23.35 $11.83 $11.24

26 | UNIT UNIT | 27
 Investment Risks Evaluating Risks
This analysis should be reflected in your discount rate which is used as a quantitative measure of a company’s risk
What are they? profile. Higher discount rates are indicative of high levels of risk.

Investment risks refer to the range of possibilities which may lead to a particular investment deci-
sion resulting in losses or any other outcomes that are outside the scope of what you thought 1 Risk Matrix Considerations
would happen.
High
Risk 1
Thus, to ensure an accurate and proper risk-return judgement, the stock pitch must identify Impact
the potential types of investment risks. This is critical given that the most dangerous risks to an Estimating the likelihood of the

Likelihood
risk being realised allows you to
investment thesis are those which you do not know about. These risks must then be evaluated
appropriately target your stock Risk 2
against the potential return to allow investors to assess whether the return is worth the risk. pitch to investors based on their
taste for risk.

Types of Investment Risks Risk 3 Risk 4

Considers the potential Risk 5

Magnitude
consequences of the risk should it
The company’s relevant costs may suddenly increase, perhaps due to wages inflation, be realised. Consequences can be
supply shortages, or regulation. analysed from both a qualitative
Cost Blow-Outs and quantitative perspective. Low
Impact

Low High
Likelihood Likelihood
The possibility that the company’s product may fail to satisfy customer expectations and
result in sales forecasts not being met. 2 Risk Analyses
Product Risk

Scenario Analysis Sensitivity Analysis

Laws and regulations may be changed which can potentially restrict a company’s Allows you to consider upside and downside scenarios Used to examine how your valuation would vary due to
operations. and how your valuation would change if these ‘bear’ and slight changes in particular inputs in your valuation such
‘bull’ scenarios materialised. as your discount rate and terminal growth rate.
Regulatory Risk

Although this is more relevant to multi-national companies, it can still impact domestic
business which undertake overseas transactions. Mitigating Factors
Foreign Exchange Risk
A company may have mitigating factors which assist in minimising the likelihood of risks from materialising or the
impact of these risks causing potential loss. These may be explicitly implemented by the company’s management or
inherent within the company’s structure.
Extended / repeated outages in particular can cause reputational damage, which in turn
may lead to a loss of revenue.
Technological Risk Example 1 Example 2

The company may have invested into derivatives The company’s inherently strong brand name may
contracts to minimise foreign exchange help minimise customer losses and product
The strategies pursued by management may be poorly executed. This could be due to
allocating insufficient resources or poor managerial skills.
Strategy Execution Risk

28 | UNIT UNIT | 29
 Executive Summary
Ooh!Media: Ooh! What a buy!

Date of valuation: 20/8/18

Ticker ASX: OML

Industry Outdoor Media
Market cap 1,150m
52 week range $3.92 - $5.41
P/E 16.5x
Dividend yield 3.10% Recommendation: BUY
Previous close (20/8/18) $4.77
12 month target price: $5.37
12 month price target $5.37
Upside 12.60% Upside: 12.60%

Investment Thesis

Historical meeting of guidance Market is too focused on the ACCC

Digital partnerships strategy is
is expected to continue risk of Adshel acquisition and is
currently undervalued
discounting the earnings upside

Price Range
7.00

6.50

$6.15
6.00

5.50
$5.37
5.00

4.50 $4.21

4.00

3.50
Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18

30 | UNIT UNIT | 31

v
 Industry Overview Strong Historical Growth
According to the OMA Annual Report 2017, the OOH OOH Industry Revenue ($m)
audience base has grown by 23% since 2010 whilst the 900
5 Yr CAGR: 11%
837
wider population grew at 14.9% for the same period. OOH 789

What is the Outdoor Media Industry?

800
advertising now reaches 93% of Australians daily across the 678
five major markets.
700
602
600 544
503

Out-of-home (OOH) advertising or outdoor advertising is advertising that reaches the consumers 500

while they are outside of their homes. 400

2012 2013 2014 2015 2016 2017

Out-of-home media advertising is focused on marketing to consumers when they are “on the go” in
public places, in transit, waiting (such as in a medical office), and / or in specific commercial locations
(such as in a retail venue). OOH advertising formats fall into four main categories: bilboards, transit,
Ongoing Digitisation
roadside, and retail. Much of this industry growth can be attributed to the industry’s ongoing digitisation of traditional, static panels
across all four categories. In 2017, DOOH as a total share of the OOH market has increased 7% since 2016 to make
up 47.3% of the entire market and this can be attributed to the benefits offered by digitisation:

Segment Information Benefits of Digitisation

Specify desired audience characteristics

Advertisers can reprogram, execute and monitor campaigns Static

Digital
47%
Retail / Other Billboards in real-time 53%

Moving and illuminated presentation attracts more eyeballs

Refers to dynamic media distributed across Remain the predominant form of OOH
place-based networks in venues including, advertising across the 5 major Australian Booking periods are more flexible due to faster installation
but not limited to: cafes, bars, restaurants, markets, making up 36% of units.
health clubs, colleges, arenas, convenience
stores, and other public spaces.

Share of Total Advertising Continues to Grow

Retail / Other The Out-of-Home Media industry had a 5.9% share of the advertising industry and PwC estimates that by 2022,
13% OOH will increase its market share in the advertising industry to 7.2%. This growth is expected to be driven by on-
going developments to transform OOH into a data-driven measurement platform, with ongoing efforts to better
Billboards quantify the number of eyeballs and therefore the ROI proposition for advertisers. This has been supported by
Transport 34% active innovation in the areas of partnerships, audience measurement and technology.
23%
2013 Advertising Industry 2017 Advertising Industry
OOHCinema OOH Cinema
4.8% 0.9% 5.9% 0.9%
Roadside Online Print
30% 28.4% Print 13.2%
22.0%
Online
45.5%

Transport Roadside
TV
Radio
23.1%
9.0%
Advertising placed on anything which moves, Made up of formats such as bus shelters,
Pay TV
such as buses, subway advertising, truckside, newsracks, mall kiosks, and telephone booth 4.4%
TV Radio Pay TV
food trucks, and taxis, but also includes advertising. This form of OOH advertising is 30.6% 8.1% 3.2%

advertising at train platforms, bus stations mainly seen in urban centers.

and airports. This segment aims to target
moving audiences. Consolidation Heating Up Again
Source: Outdoor Media Association
The industry is also looking to consolidate as evident with OML’s acquisition of Adshel, a subsidiary of HT&E, and
JCDecaux’s acquisition of APN Outdoor, both pending ACCC approval. This follows last year’s failed OML-APO
merger and a previous wave of M&A activity in 2014-15.
Source: Outdoor Media Association
32 | UNIT UNIT | 33
 Business Overview Business Model
Who is Ooh!Media? Advertiser Media Agency

oOh!Media Limited (ASX:OML) was listed on the ASX in December 2014 after spending time under Develops the intended message, the Determines the appropriate advertising
scope of the advertising campaign and the mediums for the campaign and acts as an
CHAMP private equity ownership, and is an Australian outdoor advertising and media company based budget. intermediary between the advertiser and
in Sydney, Australia. Ooh!Media.

With over 20,000 locations in Australia and New Zealand, OML clients have access to some of the
most sought out advertising spots. Of these screens, 8,000 are digital, giving OML one of the largest
digital networks in the country and the company remains focused on converting classic signs to
digital, increasing their capacity in key locations.
Landlord / Owner Ooh!Media

Owns the advertising site and collects rent Operates the site, provides

Operating Segments
from the operator. Rent usually consists of recommendations regarding the location
both a fixed rent and revenue share. and format of advertisement and
implements the campaign.

Road Retail
OML have over 3,800 roadside billboards OML have retail advertising assets in over Financials
in Australia, offering clients access to large 540 shopping centres around Australia,
format billboards located in major regional allowing them to reach a large breadth of CY15 CY16 CY17 1CY18 CY18e
and metropolitan areas. shoppers.
FY 17 Revenue 279.8 336.1 380.3 192.0 423.0
New Other
LTM Growth 7% 20% 13% 11% 11%
Zealand 4.8%
2.5% EBITDA 58.0 73.5 87.4 37.9 97.0
Locate
Margin 21% 22% 23% 20% 23%
8.9%
Road LTM Growth 36% 27% 19% 13% 11%
36.1%
Net Income 18.4 24.5 33.2 9.2 46.6
Fly
Margin 7% 7% 9% 5% 11%
14.5%
Growth NM 33% 36% 21% 40%
Net Debt / EBITDA 1.5x 1.6x 1.4x 1.4x 2.5x

Fly
Advertising placed on anything which moves,
such as buses, subway advertising, truckside,
food trucks, and taxis, but also includes ad-
vertising at train platforms, bus stations and
airports. This segment aims to target moving
audiences.
Retail
33.2% Locate Recent Corporate News
Made up of formats such as bus shelters,
newsracks, mall kiosks, and telephone booth oOh!media and APN Outdoor call off $1.b billion merger
advertising. This form of OOH advertising is
mainly seen in urban centers.

oOh!media wins battle for Adshel with $570 million bid

Source: Company Reports Source: Company Reports, CapIQ, AFR

34 | UNIT UNIT | 35
 Investment Thesis
#1 Historical meeting of guidance expected to continue
OML’s strong track record of meeting guidance can be traced to CY15 during which the company comfortably beat
the performance milestones outlined in its 2015 Prospectus:
• Year-on-year revenue grew by 7.3% and was ahead of the Prospectus forecast by 5.0%;
• Pro Forma EBITDA grew by 37.1% to $57.7 million, and was ahead of the Prospectus forecast by 18.8%;
• Digital revenue grew by 47.6%, ahead of the Prospectus forecast of 40.4%;
• Adjusted Net Profit After Tax (NPAT) grew by 56.8% to $28.5 million and was ahead of the Prospectus forecast by
28.5%
#2 Digital partnerships strategy currently undervalued
The use of big data and data analytics is expected to grow significantly, especially in indirect marketing sectors
such as out-of-home advertising. The potential to tailor advertisements more specifically to the customers’ needs
through harvesting key information from big data has prompted OML to enter into multiple data partnerships.
However, because OML has yet to quantify the value available from these partnerships, we believe that the market
has undervalued them.
Data analytics is especially important for marketing as they provide correlations between certain predictors /
drivers (consumer demographics, behaviour, etc.) and purchasing tendencies (love discounts, only go for luxury
services, etc.). Using this data, advertising companies are able to lower costs by designing their advertisements
based on the potential audience.

We believe that OML will be able to continue realising earnings upside through its data-driven digitisation strategy
and focus on delivering new, innovative advertising solutions such as the Inflight partnership with Qantas.

Academic research also suggests that these previous beats have been undervalued by the market with Bartov, Givoly
and Hayn (1997) finding that firms whose earnings releases constitute a favourable surprise continue to surprise in
subsequent years. They posit that this is because the market is inefficient in pricing in the implications of a beat for
future earnings prospects.

Guidance vs Actual EBITDA

100

90

80 Quantium
70
• Exclusive partnership with Australia’s
leading data and analytics firm, Quantium.
60
• Quantium provides brands the capability
to target audiences based on Quantium’s
50 world class customer transaction and
FY15 FY16 FY17 behavioural datasets and deliver optimised
solutions across OML’s national network.
Actual • Quantium has 900 billion data points
Source: CapIQ including 30+ billion transactions across
FMCG, Retail and Services industries,
capturing the spend and behaviour of 80%
of Australian households at a customer
level.
DSpark
• DSpark is a global mobile intelligence
company that provides a wide array of
services
• The partnership allows OML to access
DSpark’s Mobility Intelligence Report, which
provides snapshots of postal areas across
Australia that help clients learn more about
the profile of visitors.
• This is particularly useful to OML who is
looking to target overseas visitors coming
into Australia’s big cities, such as Chinese
tourists, and increase their effectiveness
and efficiency in marketing towards them.

Source: Company Reports

36 | UNIT UNIT | 37
 Catalysts
#3 Overcompensation of ACCC risk of Adshel acquisition
Given uncertainties surrounding OML’s acquisition of Adshel which remains pending approval from ACCC, the #1 CY18 Earnings Release
share price has fallen recently. However, we believe that this movement is a market overreaction and the likelihood
that the ACCC will disapprove of the deal is low. This is due to their complementary, rather than overlapping As mentioned above, OML’s management has had a good track record of reaching or beating guidance, and this is
product portfolios, with Adshel being focused on street furniture whereas OML’s portfolio consists mainly of large anticipated to be continued in the future. For CY18 the street consensus of EBITDA is in the lower end of management
format billboards. This is in contrast to the scrapped OML/APO merger of 2017, where both companies were large guidance of $94-99m which we believe is conservative, given our forecasts of $97m.
players in the billboard segment. We believe that the market has not priced in the potential revenue synergies
from the acquisition which is expected to be EPS accretive in FY18, even with no cost synergies to be realised.

Consensus vs Actuals
Strategic Rationale 100
1.4% 1.4% 0.9% 1.5%
90
80
Revenue Diversification Adshel Digitisation 1.0%
70
Highly complementary offering which will improve There is currently low digital penetration in street 60
0.5%
OML’s value proposition to advertisers seeking out furniture and there is therefore an opportunity 50
a full-suite service. for margin upside by converting Adshel’s static 40
screens. 30 0.0%
New Other
FY 18
FY15 FY16 FY17
Zealand 4.8%
2.5% % of digital sites Consensus Actual Surprise
Locate
45%
8.9% 40%
Road 40%
35%
36.1%
30%
Fly 25%
14.5% 20%
15%
10%
#1 Further
#2 Historical
M&Ameeting
Activityof guidance expected to continue
4%
5%
0% With a new wave of consolidation hitting the Outdoor Media industry, OML is in prime position to consider tilts at
OML Adshel smaller bolt-on acquisitions. OML’s healthy balance sheet positions it well to pursue such activity, with Net Debt /
Retail EBITDA expected to remain below banking covenants at 2.5x post-Adshel. Given OML’s strong cash generation and
33.2% ability to repay debt, this is forecast to fall to 2.0x within 18 months.

FY 18 Proforma Potential targets could include QMS given its unique sports division, stand-alone billboard assets or players within the
Adshel
New Data Insights data collection space.
Other 11.1%
4.2%
The unique placement of street furniture and
New Road subsequent expansion of OML’s network and reach
Zealand 33.1% will further OML’s data collection capabilities.
#3 Update on Data Analytics Development
2.4%

Locate
8.9%
Cost Synergies On 7 July 2018, OML announced its intentions of leveraging its partnership with Quantium and launching an
Fly automated private marketplace that uses machine learning to help marketers find the best inventory to use and
13.6% Cost synergies of $15 - 18 million p.a. are realisable the best timing to reach and engage with a target audience. This is part of a $15m investment to revolutionise out of
in the short-medium term. home advertising to help it gain a larger share of the media investment pie. An update regarding a successful trial or
Retail
26.6% implementation of this digital strategy would likely prove to be a positive catalyst for the share price.
Source: Investor Presentations

Source: CapIQ

38 | UNIT UNIT | 39
 Valuation Relative Valuation: $4.70
• On a forward P / E basis, OML trades at a slight discount to its domestic and international peers
• But, on a forward EV / EBITDA basis, OML trades at a slight premium
OML is currently trading below its fair value of $5.37 • Following the Adshel acquisition, we believe that this premium is justified by the upside available from OML applying
its digitisation strategy to Adshel’s mostly static panel network
Triangulating intrinsic and relative valuations with a 70/30 blend, OML is valued at $5.37, which
represents 13% upside from the last close price of $4.77.
Overall, OML’s valuation relative to its peers is undemanding when considering its stronger growth prospects

Intrinsic Valuation: $5.66

• Historical 55% skew in revenue towards the second half of the year due to increased activity from advertisers Company Name Fwd EV/Revenue Fwd EV/EBITDA Fwd P/E NTM EBITDA Growth
approaching the holiday season. APN Outdoor 3.2x 12.1x 19.6x 8%
• Revenue expected to maintain its 1H momentum and FY18 number expected to be 11% higher than FY17
QMS Media 2.0x 8.5x 15.0x 24%
number (excluding any Adshel contribution).
• This may be slightly conservative, given that industry-wide growth is currently tracking 14%. Here, There and Everywhere 2.2x 8.7x 15.7x 2%
• EBITDA margins are expected to remain stable at 24% in CY18. JCDecaux SA 1.8x 10.4x 23.8x 25%
• As OML continues to roll out digital panels, margins are expected to track upwards.
APG|SGA SA 3.4x 14.1x 21.8x 5%
Ströer SE & Co. KGaA 2.7x 9.4x 13.2x 80%

This leads us to believe that OML is on track to beat consensus estimates of $94m by ~3%. Outfront Media 3.2x 10.6x 18.9x 22%
Clear Channel Outdoor 2.6x 11.6x -13.1x 4%
Holdings
Median 2.6x 10.5x 17.3x 15%
Ooh!Media 2.6x 10.7x 16.5x 29%
Key DCF Assumptions
Terminal Growth Rate 2.5% FY19 EBITDA (ex Adshel) $97m
WACC 8.3% FY19 EBITDA (inc Adshel) $109m
Tax Rate 28.5% FY19 EBITDA Margin (ex Adshel) 24% Our fair value range for OML is $4.21 - $6.15 with a 12 month TP of $5.37

$4.21 $5.37 $6.15

FY17 - 18 Sales Bridge
500 475.6
52.6 DCF $3.92 $6.29
480
460
440 1.9 1.8
8.5
420 0.0 9.9
20.6 $5.42
400 380.3 EV/NTM EBITDA $3.89
380
360
340
320
300 Forward P/E $3.55 $5.52
FY17 Road Retail Fly Locate New Zealand Other Adshel FY18

Note: Assumes 3 month Adshel contribution

EV/NTM Revenue $3.53 $5.89

Forecast WACC
Terminal Growth Rate

$5.66 7.8% 8.0% 8.3% 8.5% 8.8%

1.5% $5.55 $5.28 $5.03 $4.80 $4.58
2.0% $5.90 $5.60 $5.32 $5.06 $4.82 52 Week $4.06 $5.52
2.5% $6.33 $5.98 $5.66 $5.37 $5.10
3.0% $6.84 $6.43 $6.07 $5.73 $5.43
$1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00
3.5% $7.47 $6.99 $6.56 $6.17 $5.82
Source: CapIQ
40 | UNIT UNIT | 41

Investment Risks
Risks are high-impact, but have a low likelihood of arising
Risk Description
• ACCC may disapprove of the
Adshel transaction and future M&A
Regulatory Risk
• High visibility of displays means
there may be increased scrutiny
regarding acceptable content
• Digital billboards in overseas
markets found to be more
Public Scrutiny
distracting than static ones
• Management may find it difficult
to integrate Adshel into the
existing business given their
limited expertise in street furniture
• May lead to failure to realise cost
M&A Execution
synergies effectively
• Earnings are dependent on OML’s
ability to successfully tender and
renew contracts
• Loss of a contract can lead to a
sharp fall in earnings e.g. APO and
Contract Risk Yarra Trams
• The capital intensive nature
of digitisation roll out and data
strategy may force OML to
undertake a dilutive equity raising
Funding Risk
42 | UNIT
v
Mitigant
• OML and Adshel are
complementary, rather than
overlapping businesses
• OML is a member of the leading
industry group, Outdoor Media
Association, which works with
government to develop content
standards
• OML has a strong track record
of integrating accqusitions
(including those outside the
outdoor media industry)
• E.g. Junkee Media 2016
• OML has a full-suite outdoor media
offering
• Large digital network offers high
ROI for advertisers
• OML remains well capitalised
post-Adshel
• There is headroom to take on more
debt
UNIT | 43
 USYD Student Managed Investment Fund
Overview
Since 2017, the University of Sydney has offered finance undergraduate students the opportunity to
manage an Australian equity portfolio using real money in real-time
About
Since 2017, the University of Sydney has
offered the Applied Portfolio Management
A (FINC3301) and B (FINC3302) elective
units which provide a forum for selected
students to develop their equity research and
portfolio management skills by managing
the University of Sydney Student Managed
Investment Fund.
Benefits
The program will prepare students for a
variety of finance‐related careers, including
equity research, investment banking, portfolio
management, credit and financial analysis,
wealth management, and investment
consulting.
For further information see: http://sydney.edu.au/business/finance/apm
44 | UNIT
Australian Students Asset Management
Overview
Australian Students Asset Management (ASAM) gives students the opportunity to gain practical
experience in funds management and connect with experienced professionals
Dual-Purpose
Convert to PNG
Provide undergraduate finance
1 students with hands-on equity
analysis and portfolio management
experience
Fund scholarships for disadvantaged
2 students
Recruitment
Recruitment for the following year’s
1 analysts occurs during second
semester and is exclusively limited to
twenty students
Open to undergraduate Bachelor of
2 Commerce students at the University
of Sydney pursuing a major in
Finance
About ESG - Focused
Australian Students Asset Management The Fund will invest in Environmental, Social
(ASAM) is a Public Ancillary Fund and the and Governance (ESG) compliant firms, while
organisation’s first product is the Student donating 4% of assets under management to
Impact Investment Fund. registered Australian charities at the end of
each financial year.
Benefits Recruitment
Students gain practical experience in funds ASAM recruits students at the beginning of
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a well-rounded education as well as connect Economic Analysts amongst others.
with experienced professionals and learn
more about industry best practice.
For further information see: https://australianstudentsam.org/
UNIT | 45