Stock Pitch - save as the possibility as not anything just let PDF

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Stock Pitch Stock pitches are reports that analyse stocks believed to be mispriced – overvalued or undervalued – in order to provide investment recommendations. One fundamental section in a stock pitch is the investment thesis, which proposes a reason why a stock might be mispriced and is then supported by evidence to further prove that the thesis is right. Financial analysis is an important factor when it comes to stock pitches, as it dictates how much exactly is a stock mispriced and supports the thesis with financial evidence. Normally, advanced valuation methods are used, such as comparable analysis or DCF, as well as other methods. However, since we believe that at this stage, our analysts are not required to be technically proficient, and can benefit much more by fundamental analysis, they would not need to go so far as to conduct advanced financial analysis and determine in precise numbers and percentages how is a stock affected. What makes stock pitches unique, is that it requires more creativity and problem-solving skills, and the ability for analysts to actually to think more thoroughly, it is also less dependent on rigorous research like other M&A or equity research reports. Teams will continue covering the stocks they had conduced Equity Research reports on, as they had already familiarized themselves with these businesses, and the stocks we delivered before experienced catalytic events, therefore, they are suitable candidates for stock pitches reports. The following are the sections of a stock pitch with a fictious example of company ABC, a residential property development company which had witnessed an increase in the stock price, following the central bank’s announcement that interest-rates will go down. The stock pitch proposes that the sudden increase in the stock price is unjustified, as analysts had found out that company ABC, has a large percentage of its portfolio in Location X, which is highly exposed to the ramification of the pandemic.

Recommendation The first section of a stock pitch is the recommendation, which should mention whether a stock is to be longed or shorted, this small section is to be written by the director. A recommendation is to be made according to the past equity research report conducted, and if a team is analysing a stock for the first time, our recommendation is for the director to make his research and conclude a decision to lead the rest of the report. In this section, there is a brief mention of different factors and sections which will be further analysed in the report. An example can be:

“We recommend shorting stock [ABC] (A residential-property development company) which is believed to be overpriced after the trading price of the stock increased significantly by 13% following the central bank’s announcement that interest rates will go down. Although interest rates are normally an indication that property development companies will improve their performance, we believe that the nature of ABC’s property portfolio holdings, coupled with the ongoing pandemic, are cardinal factors negatively affecting ABC’s performance even with interest rates down. A major catalyst in our investment thesis is that a significant portion of ABC’s property portfolio is situated in an area that is believed will be negatively affected with the pandemic, to an extent that can easily offset low interest-rates, since it is a location associated of being highly dependent on tourists, whose number will go down substantially, leading for a steep decrease in demand, which will lead for property prices to go down as well. Nevertheless, an investment risk could be that our assumption regarding how the pandemic will affect tourism is inaccurate, and that despite the increasing cases, authorities within the locations of ABC’s property portfolio can ease regulations which might subsequently cause tourism to either not change or even increase. Furthermore, there are other risks pertinent to the pandemic itself, and whether cases themselves will keep on increasing, or decrease due to the vaccine rollout”.

Company Overview Very similar to a company overview generally found in an equity research report, with more focus on recent events pertinent to the investment thesis, rather than the history of the company. Very similar to the company overview done in an equity research report, with more focus on recent events and how it had affected the company.

Investment Thesis This section provides more information on the different views of the market, for example, if there is an innovation that is believed to help the company in questions, this section would elaborate more on the technical side with a wider explanation of the situation, similarly, if regulations are believed to harm a company, a report should explain how the company can be affected. The investment thesis section must

analyse both sides, while concluding and emphasising on the side supporting the recommendation. An example for the last section can be as follows: “Interest rates can effectively help companies involved in property investment and development because of the effect interest rates have on supply-and-demand. Interest rates are a method central banks use to affect different aspects of the economy; a decrease in interest rates can “revive” the economy, as it allows investors to borrow more capital and perform more effectively. For the property market, a decrease in interest rates can help companies in two fundamental ways: 1) A decrease in interest rates means that companies’ significant expenditure which comes from paying debt goes down substantially, which means that corporations can perform more effectively and create more value for shareholders. 2) Because of the decrease in interest rates, investors are more motivated to buy properties, as investments are more likely to be justified and offering attractive returns, as well as that capital availability also increases, this leads for an increase in demand in the market, which will subsequently lead for the prices of property to soar up, meaning that the portfolios of companies holding property will increase in value. Nonetheless, as have been demonstrated, interest rates are a macroeconomic mean to stimulate markets, that can be offset by other microeconomic factors such as the fundamentals of the company. 47% of ABC’s portfolio is located in City X, which had been negatively affected with the pandemic, causing for average property prices to go down by 15.6%, after the closing of airports due to the increasing number of cases. The significant decrease in tourism can have several vital factors: 1) Properties that are used as service-accommodations for tourists such as the ones found on AirBnB, can face foreclosure, therefore causing for supply in the market to go up while prices to go down. Furthermore, with many businesses highly dependant on tourists’ revenue, such as hotels in the hospitality industry, it is highly likely that many will file for bankruptcy or close-down, hence directly affecting commercial real-estate negatively with an expectation for commercial property to also face foreclosure risks, inevitably spreading the effect to residential property. 2) Foreclosures can also be caused because of the increasing unemployment rate which will result in an increase in failures of payment by both landlords and tenants.

3) In the current conditions, uncertainty is inevitable, which means that although access to debt financing has been eased, using capital from HNWI or institutional investors is going to be more challenging, and add a risk premium to the cost of capital

Catalyst After explaining the two sides of the argument and emphasising on the evidence supporting the investment thesis, the catalyst narrows it focus more on one major factor which justifies the investment recommendation. In this section, a much more detailed explanation has to be provided, with different sources of evidence supporting the thesis. Using numbers can be great way of demonstrating the catalyst thoroughly and accurately. “The greatest determining factor that leads us to expect for the performance of the stock to be affected negatively is that Location X is the most exposed area in the country when it comes to the ramifications of the pandemic upon tourism, hence also making it the location with biggest downside with the increasing number of cases. Despite the vaccine rollout, we can see that Country X is still witnessing serious complications caused by the pandemic. The continuously increasing number of cases indicates that it is highly unexpected for Location X to get to its former economic state, and will probably continue to be negatively affected by the pandemic, subsequently stretching this effect to the property market which ABC operates in. The following are different factors involving the ramifications of the pandemic that further demonstrate the real effect on the market, and leads us to strongly believe that despite the announcement of lower interest rates, ABC will still face greater challenges which will offset the benefits coming from lower-interest rates: - 67% of people living in Location X work in businesses that depend on tourism, 45% of these had faced a negative change in their household income, this is twice as much as the average effect in the rest of the country, palpably affecting how Location X is more exposed to the negative ramifications of the pandemic. - With a significant percentage of properties operating as serviceaccommodations, such as those found in AirBnB, 23% of total residential properties found itself missing 80% of its usual monthly payment averages, thus increasing the number of foreclosures in the residential property market.

- It is reported that 1 out of 3 businesses in Location X, especially in markets that are dependent on tourism, such as hospitality and restaurants, have closed during the pandemic. This event had led for an increase in the foreclosures in commercial property, which is interconnected to residential property as well. - Despite the vaccine rollout, we can that cases are not only increasing, but are also accelerating in numbers, with percentages of change increasing 10% every week. We believe that this evidence demonstrates the extent of the effects of the pandemic on Location X, and how Location X is highly exposed to the ramifications of the pandemic. Furthermore, evidence leads us to expect that the current condition is going to be worsening in the future, with the increasing number of cases.

Financial Analysis Basic overview of the financial reports the company has been producing, in order to draw a conclusion that can support the investment thesis. Numbers and valuation metrics are going to be used in order to conclude an opinion, and not to deduce figures related to intrinsic value of company and how much is the price of the stock is mispriced. Here are types of numbers and metrics to be used in order to support the investment thesis. - Income Statement: Revenue, operating income, EBITDA, etc... - Valuation Metrics: EPS, P/E, P/S, etc... - Margins: Profit Margin, Net Margin (margins can be an indication for how the company is operating, for example, a margin that has been witnessing increasing improvement can be attributed to having efficient management and a healthy operation. - New cases have been increasing by 17% week-on-week - 1 out of 3 residents of the Location X works in an industry highly dependant on tourism, leading for 67% of salaries being affected negatively - In the last year, foreclosures in Location X was 45% higher than average cities in the country, demonstrating the real effect of how tourism contributed in negatively affecting it We strongly believe these factors combined will significantly overweight the positive effects that might have been caused by the low interest rate” NOTE: This was a brief manifestation of a catalyst, the section should be much more detailed with evidence and mention of other cases that can be connected to our

argument, with a thorough demonstration of how these factors help the investment thesis argument.

Investment Risk Analysis This section is similar to the risk analysis section found in an equity research report, however, in a stock pitch report, the emphasis is on the investment itself, and how the thesis could be inaccurate. For our example, the Investment Risk Analysis, would target our assumption that Location X is highly exposed to the ramifications of the pandemic. The investment risk would address possible events pertinent to that the vaccine rollout might come into effect later, that predicting how the pandemic will go can be difficult especially in the long-term, or that even despite the increasing number of cases, regulations will still be eased, which is happening in other location around the world....