The Structure of the Equity Research Report

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The Structure of the Equity Research Report

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

© Copyright 2005, Joachim Landström. All rights reserved

L0- 2

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 Landström. All rights reserved

1

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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. Leave support of assertions to the body of report.

© Copyright 2005, Joachim Landström. All rights reserved

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Template sections
Valuation section
Used to justify y j y 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 Landström. All rights reserved

2

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Business description section
Describe business, products, finances, and strategy of company. 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

Where i th l Wh is the leverage? ?
Operating: fixed v variable costs

Value added How to manage downturn
© Copyright 2005, Joachim Landström. All rights reserved

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, Joachim Landström. All rights reserved

3

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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 o e t Demand Environment Elasticity of Demand Speed of Product Innovation Rate of growth © Copyright 2005, Joachim Landström. All rights reserved

Forces affecting the industry

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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 Landström. All rights reserved

4

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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 company’s 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...
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