Stock Report Instructions: 2016 Semester 2 General Instructions: Choose any listed stock with at least a 10-year history of returns (this is so you have sufficient data to do your analysis), that is not in the EXCEPTIONS list posted on Stream. From various sources online and in the library (discussed in class), research your firm, gather data, and analyze the quality/expected performance of that stock, culminating in a forecast of what the stock price should be, with an associated recommendation for buy, sell or hold (for our Class Portfolio). Note that we now have Bloomberg terminals (Master’s Room, Library, and Trading Room), and you are expected to fully utilize that resource. In addition to these instructions, there is a report format that you must follow. This is in the file ‘Stock Report Template.docx’. Note: include your name in the header of the Report, but do NOT include your ID number. At the end of the semester, these reports will be distributed to the Fund Managers of our Student Investment Fund, as a resource for them when analyzing stocks for investment. When you are finished, print out 1 copy of the report and turn in by Friday, 14 October 1:00pm (assignment drop boxes outside the department office). Use the standard Massey assignment coversheet; please make sure you include on the coversheet (only) your ID, full name, and English name. Submit an electronic copy to Stream (“Stock report submission”). Make sure the electronic copy does not have your student ID anywhere in the file (including file properties). This electronic copy must be either in Word (.DOC or .DOCX) format, or PDF. I have found in the past that DOC is the most reliable, due to conversion issues with making the PDF. Submitting it to Stream will automatically submit it to TurnItIn. TurnItIn: The TurnItIn ‘score’ will be used to scale your report grade. e.g. if your turnitin score is 30% (meaning 30% of your report matches other online material), your final Stock Report grade will be 70% of whatever raw grade I assess. (I will ignore tables in that matching) Note that since final grades are scaled to a normal distribution, the only relevant number here is how you compare with classmates. If everyone gets a turnitin score of 20%, then everyone is equal in how their raw grade is adjusted for the TurnItIn score. For your perspective, historically I have found that good reports have turnitin scores from about 10-20%. Note in particular, what does not go well is to simply copy and paste from published sources into your report. Even copying a short phrase here and there will show up as matches. I am not interested in what you found that someone else said about, say, Investment Risks. I am interested in your assessment and/or summary of what someone else said. (I don’t expect you to conduct primary research, but I do expect you to use your own words to describe/discuss what others have found) If you cut/paste, not only will that increase your TurnItIn score (which is bad), but I will ignore those sections in my assessment (as though you didn’t do it). Tables: In general, you should not include tables that you did not generate yourself, except in the appendix (and there you must credit your source). Those tables you do include (in the main body of the report) should be brief, and only used to summarize information you discuss in the main text. Figures: As with tables, figures in the main body of the report should be something you generate, rather than cut & paste. Further, even more so than with tables, they should be used to illustrate points made in your text (rather than added as filler or pretty decoration). This does not mean you generate the data yourself. I expect that you will use published data from Bloomberg, the web and the company’s financial reports. You do not need to verify that those data are correct. You will merely “repackage” the data into a more understandable and summarized format. Note about workload: This stock report has the potential to get out of hand, work-wise. A professional analyst, with all their experience and information readily available, would spend full-time for about a month on one of these – roughly 200 hours. I’m expecting from you 20-40 hours on this. If you see you are spending much more than that, you are probably doing more than I intend. If you see that happening, come have a chat about what you are doing before you get bogged down. The main difference between what you will produce and a professional’s, is you will not verify numbers and inputs. I expect you to take data you can find as correct; then work your analysis from there. Grading: I don’t grade these reports the same way every semester. Just as an investor or a portfolio manager would do, I will focus on some sections, and skim others. However, it is important that every aspect is there. If something is missing, that is very likely to be noticed. You can count on a few things I always check carefully: 1) Overall professionalism, which includes completeness of the report, 2) Business description and Merits/Risks, 3) Valuation (and support for that). In addition I’ll pick 2 or 3 other sections to concentrate on, in any given semester. Report Format Details Max 10 pages for main body + appendix (unlimited) Use the template and format provided. Page 1: You can think of this page as the ‘Executive Summary’, and then the remainder of the report backs this up. Note from the Report template, there is a lot of information on that 1st page: Name and Ticker of the firm Exchange (can be part of ticker) Date of the analysis (semester& year is fine) Your name (but not your ID) (These reports will be available to Massey Fund managers next semester. They will know who wrote the reports, but they will not know your ID or your grade) Your main recommendation (buy/sell/hold), and your forecast price, compared with the current price. Select information, pertinent to an investor just wanting a quick review of the firm: Perhaps a graph of recent price performance (eg. 1 year), if it is relevant Some fundamentals Merits and risks of the investment The ‘Highlights’ section should include key Merits and Risks – reasons to buy or sell or hold this stock. I.e. this is the main thrust of the story. Pages 2-10: Detailed information for the firm: Business Description Company Overview Brief overview of the company Core business (products/services) Break-down of major divisions, if relevant Other business ventures Company operations Brief look into the company’s operations Services/Products overview Example: • Coal (~10% of total revenues) • Gas (~11% of total revenues) • Oil (~79% of total revenues) This should be sufficiently detailed to know where the revenue and costs are coming from (from the perspective of knowing strengths and risks), but not a complete breakdown of products or Services. Typically, this would *not* include company officers and/or directors, unless something about them impacts merits or risks. Industry Overview What are the main factors for the industry of your company; who are the main players, how does your target company fit in with them. (market share, what are the channels, etc.) Does your company have competitive advantage? You might include industry comparison here. Trend over past 5-10 years Forecast for the next few years Risks/Merits for the Industry Investment Summary This is to be a summary of pertinent information regarding this investment. This will probably include a brief summary of the most important aspects of merits and/or risks. This will include your recommendation and why, including rationale for final choice. e.g. “I believe company X offers a great opportunity for us to gain exposure to a stable company within the X sector. I estimate a value of $XX per share, which represents a % discount on the current price. I therefore recommend this as a BUY” Valuation Details of your valuation methods (you must use at least two methods). This should include a breakdown of various components. For example if you use DDM, you must describe how you estimate growth and cost of equity. Dividend Discount Model How growth calculated How is required return (k) calculated To calculate cost of equity use daily or weekly data for 5-10 years. Risk free rate and Benchmark (market): use appropriate measures for the country of your stock. Final answer Discounted Cash Flow How CFs estimated Growth rate used Terminal growth rate How discount rate calculated Final answer Market ratio multiples approach (PE EPS) How E calculated How PE calculated Ranges? Especially from comparable companies Final answer Summary of other analysts’ forecast price If possible, give all analysts’ prices that you were able to find, then calc mean and stdv Final valuation for the price Using all of the above, your best estimate of the forecast price Financial Analysis Discussion of the financial position of the firm, with emphasis on each of the main financial statements, and the main drivers of your valulation: Earnings, Cash Flow, and Balance sheet & financing. Other Issues (you won’t necessarily have any of this) Discuss any new or unusual issue (not in PEST or SWOT) here such as: Change in CEO Future investments/capital raising Management of debt Merger proposals Problems at a competitor New regulations Intangibles Management quality/experience Trend analysis Any other factors Investment Risks Summarize the risks – most will be some combination of the PEST and SWOT. PEST factors Political: If multinational company, what political and regulatory factors are there to consider Economic: What is the correlation of the share price to the health of the economy? If operations are overseas, factors such as currency rates, taxes, levies, etc will need to be factored in. Social: What is the company’s current social standing, how will this affect the share price now and in the future. What new regulations (due to global warming etc) might impact the company? Technological: What is the current scope of the technology that the company uses?, Is there newer, more efficient technology being used elsewhere, will there need to be a considerable amount of money spent on technological upgrades in the near future? SWOT Analysis Strengths: What are the firm’s comparative strengths or advantages? Weaknesses: What are the firm’s comparative weaknesses or disadvantages? Opportunities: What special opportunities are there for the firm? Threats: What special challenges are there facing the company? Most of this will probably be in Appendix: (but some could be included in earlier section) Industry/Sector Comparables A comparison of key financial ratios for the main comparison firms for you target firm –especially competitors. Largest firms PE ROA ROE ….1yr return …others? Mkt Share Firm1 Firm2 … Sector (or Industry) Avgs PE avgs for sector and market Historical Comparison Your summary of 5-10 years of select Financial ratios  LIMIT THIS TO A SMALL SET OF RATIOS; don’t try to include every possible ratio.