Research
Understanding our Research Process
Stock Identification
To identify stocks we use a combination of ‘top-down’ and ‘bottom-up’ approaches. Our client advisers and research department scour the NZ and Australian Markets for stocks that we believe may be underpriced and will thus outperform. At the same time, we develop ‘research themes’ based on what we believe are the major trends taking place in the markets. This combination of approaches provides us with an ample selection of stocks for further analysis and valuation.
Stock Analysis and Valuation
Our ‘Stock Analysis and Valuation’ process is comprised of two distinct areas. The first area is an examination of the ‘external’ factors including macro-economic, industry, market and competition. The second area is an examination of ‘internal’ factors including a firm’s core competencies, its sustainable competitive advantage, the management team and the financials. The financial analysis considers trends in key ratios, the balance sheet and in particular the cash-flows. The output from these two areas is assimilated to provide an analysis for a particular stock which is then circulated internally and challenged where differences of opinion arise. At the end of this process, our collective opinion is formed.
Once we have conducted our analysis on the firm, we consider the firm’s earnings forecast and how realistic we think it is. We then move to a valuation phase where we use multiple different valuation techniques depending upon the type of firm. These techniques may include discounted-cash-flow (DCF), P/E ratio peer comparison and customer-lifetime value (CLV). This valuation is then compared with the current market price and our recommendation is provided.