IRC Pres_2010

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					Global Investment Research Challenge
Where opportunity favors the prepared mind…
Kickoff Meeting – Academic Year 2010-2011
  The purpose

Teach best and ethical practices
in equity research through a
real-world experience to the
next generation of investment

• Challenge Overview and Update
  • Peter Maher, CFA

• Ethics and Code of Standards
  • Domenic D’Ginto, CFA

• How to Write a Research Report
  • Sanjay Shetty, CFA

• Company Presentation
  • Oona McCullough, Director of Investor Relations, Urban
Participating Schools

    Past Champions
     • 2009 – St. Joseph’s University
     • 2010 – University of Pennsylvania
Global IRC

• 30 Challenges
• 200 Universities

Asia Pacific:
• 16 Challenges
• 140 Universities

• 14 Challenges
• 90 Universities
Key Components

    Perform                Interview             Mentoring by 
   corporate               company                an industry 
    analysis              management             professional

                  Write a sell           Present to a 
                  side equity           panel of expert 
                research report             judges

Date                 Event
October 21, 2010     Kick-Off Event
December 10, 2010 Research Reports (1st Draft)
                  Due to Mentors
January 14, 2011     Research Reports (Final Report)
                     Due to Society
February 4, 2011     Finalists Announced
February 24, 2011    Finalist Presentations
April 6-7, 2011      Americas Regional Final
April 8, 2011        GIRC Final (Omaha)

Participating Company

     Urban Outfitters, Inc. is specialty retailer
       offering lifestyle merchandise with
       annual sales of $1.9 billion.

     The company was founded in 1970 and
       is based in Philadelphia.
Interacting with Urban Outfitters

•   One follow up-email per team as the
    ONLY company contact
•   Students may contact company
    suppliers, customers, vendors, etc.
•   Mentors and faculty may NOT
    contact the company
•   Mentors and faculty may NOT
    provide inside information or
    company reports
Faculty and Mentor Involvement

Faculty Advisor                     Charterholder Mentor
•   Insight and guidance on         •   Insight and guidance on
    research methods and tools          industry practice
    as taught in academia           •   6 hours of productive time
•   10 hours of productive time         maximum
    maximum                         •   Face to face or virtual
•   Access to faculty for other     •   Company management
    projects unrelated to IRC is        question development
    permitted                       •   Review first draft of research
•   All work must be the original       Report
    work of the students            •   Presentation development
 Report Scoring

Section                   Maximum

Business Description      5

Industry Overview &       15
Competitive Positioning
Investment Summary        20

Valuation                 20

Financial Analysis        20

Other Headings            5

Investment Risks          15

Total                     100

                    School     Team Name
  Philadelphia University        Alpha

  St. Joseph’s University        Beta

  Drexel University             Gamma

  Scranton University            Delta

  Villanova University          Epsilon

  University of Pennsylvania     Zeta

  Millersville University         Eta
 Presentation Scoring

Criteria           Maximum

Argument           35

Questions          35

Team Involvement   15

Poise              10

Materials          5

Total              100
To Do List

• By October 29th…

• All students, faculty advisors, and mentors must
  sign and return the Participant Agreement

• Students must read the Code of Ethics and
  Standards of Professional Conduct and complete the
  online Ethics review

• Students must complete the registration form

Ethics & Code of Standards
  - Domenic D’Ginto, CFA

• Character is doing the right thing, when
 nobody is looking…..

• Why are the Capital Markets broken

• ….. because there is not any trust.

• The CFA has always been about Ethics…..

• Professionalism:
  •   Knowledge of the law
  •   Independence and Objectivity
  •   Misrepresentation
  •   Misconduct

• Integrity of Capital Markets:
  • Material Nonpublic information
  • Market Manipulation

• Duties to Clients:
  •   Loyalty, Prudence and Care
  •   Fair Dealing
  •   Suitability
  •   Performance Presentation
  •   Preservation of Confidentiality

• Duties to Employers:
  • Loyalty
  • Additional Compensation Arrangements
  • Responsibilities of Supervisors

• Investment Analysis, Recommendations,
  • Diligence and Reasonable Basis
  • Communication with Clients
  • Record Retention

  • Conflicts of Interest:
    • Disclosure of Conflicts
    • Priority of Transactions
    • Referral Fees

• Responsibilities of CFA Members and
  • Conduct of Members and Candidates
  • Reference to the designation
How to Write an Equity
Research Report
- Sanjay V. Shetty, CFA
Key Elements of a Report

•   Business Description
•   Industry Overview
•   Competitive Positioning
•   Financial Analysis & Trends
•   Recent Highlights & Key Events
•   Investment Merits
•   Investment Concerns
•   Model Assumptions & Risks
•   Valuation
•   Investment Summary
Business Description

• Brief business description

• What do they sell?
  • Products or Services (Brands and Categories)
  • Analysis (Contribution, Growth and Margins)

• Customers
   • Whom do they sell to? (Business, Individuals or Government)
   • Analysis (Contribution, Growth and Margins)

• Distribution strategy
   • What channels they sell through? (Web, Catalog, Retailers,
   • Analysis (Contribution, Growth and Margins)
Industry Overview

• Market size of the industry (USD)
• What is the market Growth rate? (CAGR -5 yr)
• Market characteristics
   • Fragmented vs Concentrated
   • Monopoly/Duopoly/ Oligopoly
• Key market players and market share distribution
   • List top 5 or 10 players
• Key industry demand drivers
• Recent highlights and current concerns
Competitive Positioning

• What basis do companies compete on?
  • Price, product or service quality, customer relationship, scale, etc.
• Competitive advantages (Moat)
  • Cost structure, market leading position, superior technology, etc.
• Competitive disadvantages
• Market share
  • Gaining or losing market share
• Pricing power
Financial Analysis & Trends

• Growth (revenue, earnings, EBITDA and operating cash
•   Margin (gross, EBITDA, EBIT/ operating and net profit)
•   Returns (assets, equity and invested capital)
•   Cash flow (operating and free)
•   Working Capital (cash turnover cycle)
•   Leverage (credit rating and interest coverage)
•   Capital requirements & Liquidity
    (current/quick/cash ratio and capital structure)
Recent Highlights & Key Events

• Leadership change
• New business segment, marketing and product
• Business restructuring
• Recapitalization
• Acquisition or divestiture
• Discontinued markets or products
• Recent quarter performance
Investment Merits

•   Gaining market share
•   Market leading position
•   Pricing power
•   Superior product/service quality
•   Established brand
•   Attractive valuation
•   Balance sheet characteristics
•   Near term catalyst
Investment Concerns

•   Client concentration
•   Lack of pricing power
•   Lose of market share
•   High cost structure
•   Balance sheet leverage
•   Stiff competition
•   Unfavorable currency fluctuation
Model Assumptions & Risks

• Model assumptions
   •   Revenue drivers
   •   Cost drivers
   •   Discount rate
   •   Residual value

• Risks to estimates
   •   Unfavorable pricing environment
   •   Unfavorable change in economic scenario
   •   Extreme balance sheet leverage
   •   Demand decline

• Intrinsic value estimates based on discounted future
  cash flows are ideal but “garbage in – garbage out”
   • Risks (discount rate, residual value, growth & margin assumptions)

• Other techniques can indicate opportunity:
   •   Valuation relative to history (5 years)
        •   Risks (history does not fully reflect future)
   •   Valuation relative to its peers
        •   Risks (no pure play peers)
   •   Valuation relative to the market
        •   Risks (market could be overvalued or undervalued)
Investment Summary

• In a handful of bullets, describe:
   •   the company’s business;
   •   the key risks to shareholders;
   •   its value;
   •   and the expected return for buyers at the current
       market price

•   Start early
•   Double check your facts
•   List your data-source
•   Edit multiple times
•   Get it reviewed
•   Incorporate the feedback
Good Luck !
Thank You !