Analyst company reports, once fired indiscriminately at fund managers in the City, are now being pus...
Analyst company reports, once fired indiscriminately at fund managers in the City, are now being pushed under the noses of private investors. There is no end of choice with price tags of between £5 and £50 for research from up to 350 different providers. But some reports are better than others and question marks are hanging over the independence of the analysts from their corporate finance departments.
Multexinvestor.co.uk is hoping to corner the market in providing online broker research to UK private investors. Anna Marrs, CEO of MultexInvestor.co.uk, says: "We are absolutely committed to helping private investors make well-informed decisions. You do not have to rely solely on a stockbroker - the site will help you research and understand the markets and companies by accessing our broker reports."
And Multex is taking a pan-European view. According to Marrs, they aim to be the most accessible and reliable source of global investment research across Europe. They have partnered up with the big retail financial portals such as Interactive Investor and Hemmington Scott to distribute the research to Internet surfers.
But there is increasing concern in the City that analysts are the servants of their corporate finance departments that clock up the bulk of an investment bank's profits. In the recent Orange flotation, all analysts requesting access to management and further information were required to hand over editorial control to Orange.
While analysts muttered a few mild complaints about Orange, they all submitted to the requirements.
One of the increasing number of small independent research boutiques is equityinvestigator.com, a specialist in technology stocks. Karine Luckraft, who founded the company, wonders whether many investors really understand the concept of independent research.
She says: "Professional investors do feel they are more and more being left out in the wilderness as investment banks make sure that they make money from their corporate finance departments. Therefore the analysts are being used to facilitate corporate deals. They have to write buy recommendations to keep the corporate client happy."
Equityinvestigator.com has edited its research to around a third of the usual report size to make it more user-friendly for private investors.
Choosing an analyst
Once you have decided to buy a report, you have to make a decision on which analyst to follow. Who is the star analyst whose recommendations carry the most weight?
The Reuters Survey, produced by Tempest Consultants, ranks all the analysts by sector after polling 92 fund management groups and 254 companies. There are stark differences of view between fund managers and companies over who is the best analyst. Gregor Bamett of Tempest believes the problem is one of perception.
He says: "Analysts say that they spend about 11% of their time on investment banking deals while fund management groups think that it is about 27%. I think that there are actually not very many analysts who are spending a quarter of their time on investment banking."
Some companies are probably favouring their house brokers who incidentally would be expected to have the best forecasting information and a direct hotline to the finance director. Overall best research on UK larger companies this year is Merrill Lynch but these chop and change every year.
A company report will include a nice clear summary on page one with pages of number crunching at the end. In the middle you will find detailed product reviews, analysis of past and future growth and a close look at industry and competitive position. The stock valuation will usually provide a target share price and some sensitivity analysis of the valuation to key variables such as costs or economic factors.
Readers will soon get used to the strange analyst-speak terminology such as enterprise value and price to sales. But who knows whether the latest accounting definition of terms such as EBIT and EBITDA means anything significant? EBITDA of course means earnings before interest tax, depreciation and amortisation and is seen as one of the cleanest ways to see what cash is coming in.
MerrillHSBC.com, a new service for wealthy private clients in the UK, has decided to open up their back library of analyst reports to their target audience but has roped in Wide Learning to provide translations of the reports.
According to Sam Woodley of Wide Learning, the particular focus of MerrillHSBC.com is for consumer investors. The information that they ordinarily supply to corporate clients is obviously of great use, but if you are not a corporate you may not know how to interpret it and how to monitor it.
One thing about research reports that cannot be knocked is the detail inside them about the companies and their market place. Having all this in one convenient report is a service not often available to the investing public. While the actual recommendation and the utterances of the analyst may change, a detailed knowledge about the company is invaluable. Even so, the hot stocks of tomorrow are likely to be the ones rarely visited by the suits from the City. Following the herd is not the only way to spot winners.
Mark Harrison is chief investment editor at Interactive Investor International
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