Investment Banking Internship Class

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Investment Banking Internship Class

• The Company Write-up
• Or Getting your best ideas on paper
• Or You have to know it--to do it!

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Objectives

• A. Know the importance of the company write-up
  process
• B. Understand the process on how to write a good
  company report
• C. Understand the format that I require for this
  internship

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The Importance of the Company Report

• What is the company report write-up?
• It is the final document that will be read by
  your readers
• It may be your only chance to convince your
  reader of the validity of your recommendation.
  Do it well!
• Will it differ depending on your audience?
• Yes. Write accordingly!

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The Company Report (continued)

• How much will most portfolio managers actually
  read of a normal report?
• Generally only the first paragraph or page, and
  the rest only if you can pique their interest.
  Keep it clear and succinct!
• How important is a good summary?
• Very important. Your summary must stand out to
  get read!

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Questions

• Any questions as to the importance of the company
  write-up process?

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Know How to Write up a Good Company Report?

• Follow the process
• Understand the global and country economic
  framework in which the company operates
• Understand the global and country industrial
  framework in which the company operates
• Understand the type of company and the key
  factors which drive value or profitability

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Use the Global Analysis Framework

• Global Economic and Political
  Analysis
• (You know what is the world doing!)
• Country Economic and Political
  Analysis
• (You know whats happening in your main
  markets!)
• Global Industry Analysis
• (You know what the global industry is doing!)
• Country Industry Analysis
• (You know whats happening in your main
  industry!)
• Company Analysis
• (Heres where you should be
  now!)

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Find your key information

• Economic information
• Multilateral institutions, global publications,
  general financial and economic magazines (I will
  provide this!)
• Industry information
• Key data providers (Bloomberg, Reuters, etc.)
• Company and competitor reports
• Company information
• Discussions with management, suppliers, etc.
  This is the really valuable work comes in!
• Financial press and industry and related sources
• Financial reports (10-K, 10-Q, and other reports)

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Categorize your company

• Each of these general types of firms possess
  different characteristics, so investors need to
  focus on different firm attributes to determine
  if the firm is attractive or not. We will use
  Peter Lynchs same six categories that we used
  with the industry reports (review the Industry
  PowerPoint's for details)
• Slow Growers
• Stalwarts
• Fast Growers
• Cyclicals
• Turnarounds
• Asset Plays

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Gather Your Information

• Do your homework
• Know the company like you owned it. You may.
• Document major positive and negative factors
• Keep these in a specific place as you read and
  study the company. That way you will not forget
  anything
• Prioritize your positive and negative factors
• Emphasize those that support your recommendation

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Write up the Report

• Finalize your analysis and make a recommendation
• Come to a conclusion as soon as possible.
  Support it!
• Update, review, and finalize your report
• Update your financials, review your
  recommendations after any market moves, and
  finalize your report the day before you turn it
  in.

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Update your Report

• Finally, just before you present to company
  management, update your report a final time
• Update your
• Stock Price
• Market Index Price
• Industry Index Price
• Company Earnings Estimates and date
• Reprint your relative return graphs, and
• Review your major recommendations and intrinsic
  value

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Note

• When you present to company management, they are
  not just concerned about your financials, but
  everything that has happened with your company.
  You must know
• Any recent announcements that would impact your
  company, i.e.
• Changes in the company purchases, management
  changes, earnings reports, profitability
• Changes in the industry technology,
  consolidation/acquisitions, leadership changes
• Prepare accordingly

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Questions

• Any questions on how to write up a good company
  report?

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C. How to Write your Company Report in My
Report Format

• Remember
• Note that every analyst, portfolio manager, or
  director of research will have their own
  preferred way of writing up a company
• Learn to do it their way, but dont hesitate to
  add the key areas you think are important after
  you have put it in their format!

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Why this Framework?

• Efficient
• There is lots of information in one place
• Effective (but more difficult)
• It is harder to write a one-page report than a 20
  page report, but it is easier to get others to
  read it
• Consistent
• We will be sending out your research to asset
  management/buy-side companies as examples of BYU
  students analysis
• Up-to-date
• We are seeing more of this type of research in
  industry

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Key Areas of the Framework

• Key areas of information
• Company and Market related information
• Summary
• Background
• Positive Factors
• Negative Factors
• Things to Watch
• Earnings Estimates

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Investments Write-up Format
1. Key Stock/ Market Information
7. Earnings Estimates
2. Summary
6. Things to Watch
The Company Report
3. Background
4-5. Positive/Negative Factors
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1. Key Stock and Market Information

• Key general pieces of information
• Company, country, industry
• Key specifics (and source of the data) for the
  forecast year
• Current Price (from Exhibit 4 section 5,
  i.e.,E4-5)
• Current Market value (from E4-2)
• Prospective Price earnings (from E4-2)
• Prospective Market PE (from E4-17)
• Company type (discussed earlier)
• Relative fair value (from Intrinsic Value
  section 8)
• Intrinsic value (from IV-7)
• Recommendation (your view, but consistent with
  your Intrinsic Value-8)

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Summary

• What is the summary?
• This is the key piece of information for the
  analysis
• If you have no recommendation, you are just
  learning about the company
• The purpose of financial analysis is to make a
  decision about the company that can make the
  reader money
• Write it well. It may be the only part read by
  your audience
• It should be a summary of your most important key
  points supporting your decision

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3. Background

• Why is the background important?
• This gives the historical framework on which your
  analysis is built
• It includes specific information that is
  important to the analysis, including when
  founded, listed, key divisions, sales/profits by
  division, sales/profits by region, major
  shareholders/groups, percentage float, etc.
• Help the reader to understand which divisions are
  most important and profitable
• Include those areas which you think most relevant
  to the investment decision

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4. Positive Factors

• What are positive factors?
• These are factors which will enhance the
  profitability of the company to the investor.
  These could relate to
• Valuation
• Earnings growth
• Financial condition
• Economic positioning
• Market/industry competitiveness
• Management
• Cost structures
• Asset utilization (PPE)
• Accounting aspects

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Negative Factors

• What are negative factors?
• These are factors which detract from the
  attractiveness of the company to the investor.
  These could include the same factors discussed
  before
• Key caution
• Regardless of your recommendation, your positive
  and negative factors should overall support that
  recommendation, i.e. dont have all positives and
  a sell recommendation
• You want to show you have analyzed the key areas
  for analysis, yet your key goal is to support our
  recommendation

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6. Things to Watch

• Why a Things to Watch area?
• Portfolio managers/analysts cannot spend all
  their time watching a single stock when they have
  20-80 stocks in their portfolios
• Here you are stating the most important areas for
  the Portfolio Manager to watch.
• Pick 2-3 critical items to watch
• That way, if these events or items happen, its a
  flag for the portfolio manager to go back and
  re-evaluate what is going on

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Earnings Per Share Estimates

• Why Earnings per Share estimates?
• 1. It shows you the forecasts and directions that
  the other analysts are going
• 2. It gives a mean and standard deviation to tell
  you how close or how far away you are from the
  mean forecast of the other analysts
• 3. It lets you know if, perhaps, others are
  seeing things you arent, or perhaps, you are
  seeing things others arent
• Note You will rarely make money on forecasts
  where your forecasts are in line with what
  everyone else is saying. You make money when
  your forecasts are different from others--and
  when you are right!

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Suggestion

• As you finalize your report, I would recommend
  that you go to the HBL Library and read a couple
  of Wall Street reports on your company to get a
  sense of the things other analysts are writing.
• Read what they are saying
• Read what items they find most critical
• See if you have included all pertinent data

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Review of Objectives

• A. Do you recognize the the importance of the
  company write-up?
• B. Do you understand the process on how to write
  up a good company report?
• C. Do you understand the format that I require
  for this class for the company write-up?