What can you infer from the above picture?
It's a bit confusing, isn't it? You see a professor, a medical doctor, and an undergraduate student. You see a scientist, a doctor, a student and s professional. Analyze your answer for a minute. If you can't think of an answer, here it is.
Research is a common term. Scientists conducted research and have blessed us with miracle drugs. Doctors have been able to save millions of lives by bringing new medicines into use. The student nominee can relate. How many projects and assignments have you completed in college and school? Innumerable right? You can't remember how many and for how long? Google will be the first thing you think of. Take a look at it again. Why do you believe Jacob (the person at the end of the picture) has been given the title "researcher" and is in this image?
What is an Equity Research analyst?
What do they do? What are they? What are they doing? What research are they doing? I will answer your questions one by one. You have probably heard how people love to invest in stocks or shares. Stocks and shares aren't just for individuals. The same is true for large organizations. They produce an equity report for clients of this size. This equity analysis report tells the client whether to invest or not in a company.
Jacob is the Equity Research Analyst for a major brokerage firm. Matt has benefited greatly from his research reports. Matt is now a character in the story. We'll quickly see why he's in the story.
Matt, a professional investor, used do his own calculations but became busy with work and the family. Jacob, an Equity Research Analyst, introduced Matt to reports on investment research by large investment banks and brokerages. Matt's investments improved after he read these reports. The following example shows how equity research can help investors make informed decisions.
What is a Equity Research Report?
A report on equity research is prepared by a strategist or analyst. Analysts like these are a part of investment research teams in stock brokerages or investment banks. For a simple explanation, let's look at this.
There is a motto that you use when researching or investigating something. It is your motto to use the information you have gathered to help you reach a conclusion. You might have completed several projects in your academic career. What was the final outcome? What was its final output? Equity research reports are no different. Diverse investors invest in different stocks and companies. The investment was made with the intention of getting a high return.
How do investors decide on which companies to invest? Equity research reports from large brokerage firms and investment banks are a good way to start. Let's understand equity research and learn how to write them. Equity research reports may focus on specific stocks or industries, currencies, commodities, fixed-income instruments, geographic regions or countries, etc.
The term "research reports" is used in the investment world to refer to the "sell-side" research conducted by brokerage firms. Research reports usually include recommendations as to whether a stock should be bought or sold. These reports are generated by a variety of sources, including market-research firms and internal departments in large companies. These reports will then be distributed to retail and institution clients. These reports will be produced by the research analysts and include recommendations such as Buy, Hold, or Sell. These reports are available from a variety of sources. Brokerages often provide them free to their clients.
Who are the clients of equity research reports?
Equity research reports are produced by brokerage houses. Who are these clients? What do you think? The answer is simple. Below are clients interested in equity reports.
- Pension and Mutual Fund Managers
- Institutional salespeople
- Financial experts
- Wealth Management Specialists
- Retail brokers servicing individual clients
- Hedge Funds
You can find below a list of possible investors who may be interested in receiving equity research.
Below is a list of brokerage houses who provide equity research to the clients below.
The anatomy of a stock research report
The following points are important to include in an equity research report
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Target Price and Recommendation
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This report provides an overview of investments made over the past period of time. It includes information about the types of investments, their performance, and any changes in the portfolio.
The Investment Summary contains a short description about the company, important recent developments, a forecast of earnings, a summary of valuation, and the recommended action. If the recommendation is to purchase or sell a particular security, it should include a reasonable and clear explanation of why that security is mispriced.
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The purpose of our company is to provide services and products to our customers that will benefit their lives.
The description of the business should be detailed and include information about both the company and their products and/or services. It is important to understand what drives revenue and expense. The company can provide all the necessary information, as well as regulatory filings and publications in the industry.
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Industry Overview and competitive Positioning
This section provides a general industry overview. This section includes an industry-wide competitive analysis. It is important to develop a group consisting of peers for the competitive analysis.
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Gauging the worth of something
This section must include a comprehensive analysis of the company's value using standard valuation metrics and methods. Here, you can discuss valuations based on DCF or relative valuations.
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Financial Analysis
The section on financial analysis contains an evaluation of the past performance of the business and a prediction of future performance. Financial modeling is a way to help readers make decisions about investments by understanding the future performance of a company. It is important to note that the model must be unbiased in every way.
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Potential hazards associated with investing
Investment risks should be included in the section on potential negative developments within an industry or company that may pose a threat to your investment thesis. Risks may be operational, financial, regulatory or even legal.
Equity Research Reports Types
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Reports of Initiation
The brokerage houses have written research reports with company details. The reports are detailed and can range from 20 to 50 pages.
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Reports on Sectors
The name of the report may give you a hint. It does provide information on a particular sector. Such reports include all sector-specific information.
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Economic studies
Equity research reports of this type are written to assist Portfolio managers in making decisions about Country-specific fund flows. These reports provide important information about macroeconomic conditions.
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Quarterly/Annual Reports of Results
The reports are usually 2-3 pages long and highlight the key updates. These reports do not go into detail and only highlight the most important results.
What to remember before you write an equity research report
- By providing a report, you inform your clients about the market and help them make an informed investment decision. It is therefore useless to tell your clients the facts without giving an opinion on what will happen in the future. You can find the same headlines in newspapers. Why bother to write a report?
- You are not writing a final report on your subject or organization. Let historians do that.
- Make sure you do not promote or advertise the company in any way. Let the PR firm handle that.
Focus on these areas
- Know your company.
- Know the accounting, product and service, management and selling practices of your business.
- It is important to understand its relationship with suppliers and customers.
- Know your industry
- Learn what the government has to say about your business and industry.
- Market research is important to know what people think about your business and industry.
- What are your clients looking for when it comes to investment ideas?
What do readers want to know?
Readers want to know where they should spend their hard-earned money.
Before committing money, every investment professional does their own research. How can equity research help? It is important that the research report identifies trends and value-adding factors. It should provide some value to the reader and encourage them to return.
- Keep it simple stupid (KISS) is the best way to operate.
- Your report does not have a climax at the end. Your conclusion should appear as the headline of the first page.
- The reader's attention is of paramount importance. You must make sure that your reader reads your report, not the one of your competitors.
- Never say anything bad or unreasonable.
- You should submit your report on time.
- Always keep in mind that your audience is also professionals.
Ten Golden Rules for Writing Equity Research Reports
1. Clear View of the Company
You must have a clear understanding of your company, including its investment rationale, its risk assessment, the key drivers of growth, costs, and revenues.
2. Recommendation/Rating
The recommendation should include the name of the company and its recommended action, such as buy, hold, or sell. You can include words like underperform or outperform. If you're unsure of the structure at the beginning, you can download templates. You will gain a better understanding of your report's format by going through templates.
3. Price Target
It is important to mention the target price and recommendation.
4. Investment Rationale
Why the recommendation is being made, and why it is so. It is important that the investment rationale be crisp and clear. You should give reasons for why you believe the price of shares will increase or decrease.
5. Graph of Stock Value
This chart includes the movement of share prices over the past one year.
Business plan
Mention the business model of your company and how you expect it to perform over the next 2 or 3 years.
7. Key Ratio Analysis
Here are some important points to consider:
- Ratio Analysis for the Company
- Share prices on an exchange, compared to their 52-week lows and highs.
- Market capitalization. Enterprise value, Earnings before interest, tax and depreciation.
8. Justification for the Recommendation
Recommendations must be backed up by a solid argument. Make sure you have strong reasons to back up your recommendations.
9. Lawful Issues
Write down the possible effects of a legal case on the stock price.
10. Equity Research Reports: Covering All Areas
Be sure to include accurate information in the report about a company's future plans, its financial situation, its management, their market, and any other relevant factors.
Equity Research Report Format Standard
1. An account of the facts
- Use headlines to draw attention and commentaries wherever possible.
- It is important that the report does not look cluttered. This will not bring you any more readers next time.
- Risk factors should be discussed
- Your findings should be summarized with a headline that is similar to the one in a newspaper
2. Fashion
- Reports should be jargon-free
- Instead of buying, use words such as buy.
- Use Active Voice
3. Charts & Graphs
- A picture is worth a thousand words. Graphs, charts and diagrams should be used whenever possible
- Use a table for data presentation