The Structure of the Equity Research Report

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The Structure of the Equity Research Report

Advanced Company ValuationU l U i it

© Copyright 2005, Joachim Landström. All rights reserved

Uppsala UniversityDepartment of Business Studies

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The equity research report template

HighlightsInvestment summary

Historical financial analysis y

ValuationBusiness descriptionOther headingsIndustry description and competitive position

EstimatesInvestment risksDisclosures


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Template sections

Highlights sectionTells the reader why they should read the report.y y p1-2 sentences per bullet.Be clear and concise.

Investment summary sectionMake a longer statement about your recommendation.Make assertions that back up your recommendation.


Leave support of assertions to the body of report.

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Template sections

Valuation sectionUsed to justify your price targetj y y p gEach 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.

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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&AsRestructurings – effects/pay back expectationsDiscontinued operations

Wh i th l ?


Where is the leverage?Operating: fixed v variable costs

Value addedHow to manage downturn

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Template sections

Other headingsUse to make points that do not fit in the rest of the reportp pContains for example:

• Cost of capital calculations.• Dilution of shares analysis.• Large insider holdings, et cetera.


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L0- 7 Industry description and competitive position section

Describe the industryWhere in cycle does

Who are the competitorsDescribe how the

industry excelHow has it performed in previous cyclesCyclical, Continuous growthIndustry MaturityEffects of recession/ slow

company fits into the industryWhat are the factors that affects the company the mostDemand Environment


recovery

Forces affecting the industry

e a d o e tElasticity of DemandSpeed of Product InnovationRate of growth

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Template sections

Historical financial analysisMust be ratio based using a bottoms-up using the DuPont and the leverage formulasand 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


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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Template sections

Estimates sectionMust be ratio based following leverage and DuPont-formula.The analysis of the future should be done relating the company toThe 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


Short run Total Performance• Analyze the company’s 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.

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Template sections

Investment risk sectionBusiness risk/Financial riskDisclose risks to your recommendation

• What would make you change your outlook for this company?

Be specific and describe why they are risks

Disclosures sectionLegalese


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

Documents

The Structure of the Equity Research Report