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Forum & analysis commenting

Guide for using graphs and images in forum comments

It is many times much more illustrative to use picture than to try to explain in words. That’s why you have a possibility (which is also recommended) to use in forum comments:

  1. Ready-made graphs from company views pages and
  2. Your own images

Adding ready-made graphs

Adding ready-made graphs from company views pages is fast and easy.
1. Click “Add graph” and a new window will open.

2. Select a language and a page, where the graph is located and click “View”.

3. Select static or dynamic graph*

4. Click a graph to attach it to your comment. The graph is attached and you can click another graph.

5. Click Close window button when you have attached all the graphs you wanted.

*Difference between static and dynamic graph
Dynamic graph means that the graph will change as your estimates change. Static graph means that the graph will not change anymore no matter how your estimate data will change. We recommend the static option as the dynamic graph might lead into a situation where your forum text would tell a different story than your graph as the data would have changed afterwards.

 

Adding your own images

There is an “Add image” link in the normal write message to forum page. This link can be found right next to the “Submit message” button.

1. Click “Add image” and you will come to a screen.
2. Press Browse and find and select the picture you want to add. Press “Add image”. The picture will appear to the list of picture names under the title “Choose image”..
3. Select a picture and click on “Attach image”.

 

Positioning added graphs and images

Image will appear to the message as a code. You can move the image by moving this code. You can put the code anywhere in the text and the image will be located to the place where the code is.

Previewing your forum-message

Select Preview to actually see the picture and the message as a whole. Modify the message in the way you want it to be seen.

Posting your forum-message

Post the message in a normal way. Message will appear to forum like it was shown in preview.

What kind of pictures can be used?

Basically you can use any type of pictures that is recognized by Internet Explorer (and others). Basic types such as jpg, jpeg, png and gif are supported. One thing one should consider is the size of the picture. Naturally forum has its limitations when it comes to size, so pictures should be reasonable small.

 

Using template forum comment

The template forum comment provides you with the most relevant graphs pre-filled to the text and ready-made html formatting for headings and bullets.

1. Select the “TEMPLATE” from the drop-down menu in the forum
2. The ready-made formatting is brought to the text box 
3. Start filling in your own text and headings to the sections “Insert bullet”, “Insert heading” and “Your text here” 
4. To help you navigate in the text you can click Preview before typing
5. Remove or add headings and graphs if necessary.

It is recommended to concentrate on the same issues as in the template headings but you can also type in your own headings or add/remove headings and graphs.

Guide for editing forum comment text

Text is more readible if it has been edited. Forum comments are written inside html tags most of which are not visible to the user. You can either write text in a html text editor and copy it here or use html tags directly in you comment text.

Using template forum comment

The template forum comment provides you with the most relevant graphs pre-filled to the text and ready-made html formatting for headings and bullets. Select the template from the drop-down menu in the forum before you start typing your comment. After the ready-made formatting is brought to the text box you can start filling in your own text. It is recommended to concentrate on the same issues as in the template headings but you can also type in your own headings or add/remove headings and graphs.

Using html editors

You can use, for instance, a free software editor to easily edit your text:

•    EditPlus Text Editor

Remember:
1.    Copy only the essential part of the code in the editor. You should not copy the whole page, since a forum comment already is a page, and placing a page inside a page will lead to troubles.
2.    Do not use Word as a html editor. It is likely to get in troubles with Word’s html code, since it adds many unnecessary tags in the code.

Using html tags

 

Text in the comment Final appearance
 cursive text cursive text
 underlined text underlined text
 bolded text bolded text

Html tags guides

•    NCD HTML Design Guide v6.0
•    HTML 4.01 / XHTML 1.0 Reference

The track-record and creditability of current management

Importance of management guidance

Management guidance (or management outlook etc.) probably has a lot weight when considering estimates – Normally it can be said that the management has the best view about how their company is really doing and what the future holds for them. This, however, does not mean that you should believe everything management says without checking the facts.

Track-record and creditability

What you should do is find out and tell how accurate the management guidance has been in the past. Best way to do this is to use the track-record of management: basically you just tell what the management has been expecting and what has been the actual result. Compare estimate vs. actual, simple but effective. With this information you, and every one else, can measure the creditability of current management. If you for some reason doubt the credibility of management, always justify your arguments with facts. Management probably doesn’t appreciate if their trustworthiness is questioned without solid arguments that are backed up with facts. For example you can support your thoughts with developments of net sales, profitability, order book or market situation.

Good management vs. bad management

Even the best of us make mistakes and management is no exception. What separates good management from bad management is the amount of mistakes and the quality of communication. Bad management makes perhaps more mistakes, more serious/stupid mistakes and/or it does not reassess and communicate the situation so quickly to investors than the good one. Good management tells relevant information openly, honestly and without delays. Bad management normally communicates poorly with the market and maybe even, in some extreme cases, delays, hides or twists relevant information (this naturally is against law and very extraordinary).

Management guidance and expectations – Different styles

It is good to recognize the style of your company’s management. In many cases management gives cautious and modest estimates, so they can be outperformed and disappointments are avoided. In the other end there are some companies that are constantly over-optimistic. These companies are due to disappoint the market with less than expected results. Some companies don’t really offer much management guidance – they just settle for stating some obvious facts. This is quite common among smaller companies as they typically have fewer resources for this kind of things. Fortunately there are also companies that can normally offer both realistic and useful management guidance.

Summary

All in all, good management can normally be trusted and it’s accurate enough on its estimates. On the contradictory, bad management can rarely be trusted and its expectations can be more based on a feeling than actual facts. Still, if you don’t trust management and you’re estimates differ from theirs; always justify your thoughts and estimates with good, fact-based arguments. There are also different kinds of styles giving management guidance – try to recognize the style of your company.

Description of competitive situation and position in markets

Description of the biggest competitors

You might want to write a brief description of the worst competitors of your company. It should be able to answer at least to the following questions:
•     What is the current competitive situation, how has it been developing and how do you believe it will develop in the future?
•     How are market shares divided among companies? How have they been developing and how do you see the future?
•     How big and profitable are the competitors?
•     What are the major differences between the competitors?
•     What are the strengths and the weaknesses of each competitor?
•     Has the competition any special features (such as government regulation or major changes)?

Comparing to others

Always compare features of companies to the ones of your company. This way readers can get better vision of the market situation than just plain numbers without context. Remember that companies also have different kinds of valuations. If some company is in superb situation, growing fast or has exceptional profitability, it is natural that this company should have higher valuation. Valuation can be seen for example in P/E-, EV/EBITDA- and P/B – ratios. Compare these figures in your company’s peer group. Still the acceptable level of these figures should be determined case by case.

Competition methods and advances

Tell about the competition methods of the business. Are companies competing with price, quality, image, brand or something else? What are the competitive advances of your company? Tell about their nature for example whether they are long-lasting or easy to copy and therefore temporary. Is the importance of your company’s competitive advance diminishing or growing? Think also about the future and possible changes.

Try to express the situation in a way that everyone can assess how competition will develop in the future and how each company is going to succeed in it. You may also try to compare things like brand and image among peers group. Although it’s difficult to estimate the importance of brand, it is clear that a strong and well-known brand has a significant effect on competitive situation and on consumer choices.

Where to get this kind of information?

First you should ask the company (investor relations contact). The company has surely information about its competitors and their market shares etc. and normally they also give investors at least some of this information. Even just a list of competitors is a good start and thereafter you can put the names on Google and… Also customers of the company are a very good source of information and they can tell you also much more interesting things than just the name of potential suppliers. The customers can reveal also why they prefer some suppliers over the others i.e. what are the relevant competitive advantages that the companies may have.

Setting and arguing recommendation

Before reading this section you should have read the section “What is important in analysis to try to estimate?”. It discusses also the basis of recommendation and different valuation cases thereby. We also recommend that you would use valuation scatter in estimating the valuation of your target company.

The key factors when setting investment recommendation is that an analyst

1) Makes justified target price assumption of the company based of future financial perfomance and current valuation (with e.g. valuation scatter)
2) Compares the company (valuation multiples and financial perfomance) to other companies (with e.g. valuation scatter) and
3) Above all gives transparent and realistic arguments for all the factors he/she has pondered hereby, so that an investor (a customer) can see which of those arguments are reliable and which perhaps not.

The recommendation should never be based on your unexplained “feeling” and the recommendation should always be based on, and be in line with, the long-term target price set by an analyst.

Setting target price

What should the target price then be? There is no exhaustive answer on that question. There are several valuation methods, and important is that you shouldn’t blindly trust one. Instead use many methods together and then set some kind of consensus target price.

Different valuation methods

Relative valuation (comparison with other companies):

For example if some multiples (e.g. P/E, EV/EBIT) are lower/higher than the ones for companies in the same industry (or companies in general). Be careful using this method, because the variable of your company may well be at the “right” level when the industry is over/undervalued. Furthermore the company itself might have such characters that justify lower relative valuation than its peers: weaker profitability etc. Hereby you can use e.g. valuation scatter.

Absolute valuation:

Some variables are very low/high. For example P/BV (Price / Book value) is low (e.g. below 1) despite of that company’s profitability (e.g. ROE %) in the future seems good (e.g. better than 20% in the same time as P/BV is below 1). In this case you should recommend buying this share, because when the markets notice that profitability will improve, the P/BV (the share price) rises. Hereby you can also use e.g. valuation scatter.

DCF (discounted cash flow) value:

One thing that should also be in the line with the recommendation is the DCF value of share price. The DCF value should rather be supportive for the recommendation than be the factor on what the recommendation is based on. In other words, it is preferred that you adjust the DCF value to support your recommendation, and not vice versa, because DCF can be manipulated easily: by manipulating profitability or growth estimates in distant future you can always make DCF fair value look like as the company is “cheap”.

DCF parameters (mid-term growth and profitability) should be set at the level, which makes your the DCF fair value to be about the same level as your target price (which in turn is defined by other means than DCF). If that is not easily possible (requires too high or too low estimate parameters), then it is of course a sign that something is wrong and you should rethink your target and the whole valuation. Thus the DCF acts best as a kind of “reality check”: it checks whether your target price is approximately at the right range.

Remember that good profitability and good earnings development always reflect the share price. In the very long-term share prices follow the return on equity (ROE%) of the company. In the short term does not as the current market value can be far from equity book value and as current valuation (P/BV) reflects the whole future and not just one or two years.

Do not forget to compare to other companies

Analysts sometimes tend to “fall in love with some companies they analyse”. This happens especially if the companies are very good at what they do. This sometimes ends to buy recommendations even in cases when the company or the whole industry is overvalued. That’s why it is vital that you remember to compare your company to other companies and use that information when setting the target price and recommendation.

Great help for doing comparison gives Multi-criteria rankings (MCR) page in ValuViews where companies are ranked based on different variables. If your opinion differs a lot from MCR lists, you should give very clear justification why you have ended up on your decision. Another, perhaps even more illustrative comparison tool is valuation scatter which you should also use hereby.

For example, if the company you are analysing is located on the top of the MCR or scatter list and your recommendation is reduce, you should argue why you have decided this way. However, the MCR-list is not pure truth, so don’t be afraid to disagree with it. For example a company may well be at the bottom of the list because of current bad financial performance, but the financial performance might be improving in the next years (there are already signs of that but profitability lags the other signs like improved customer orientation or improved operative efficiency which can not perhaps be seen in EBIT because of overcapacity or something like that) and the market may have not noticed it yet.

Briefly, if the company is “bad” at the moment, it doesn’t mean that will always be “bad” and cannot improve – but there must be reasons and proofs of that improvement – otherwise it might be bad for next ten years. So do not just expect that something must happen…. However, one common feature of really good investment target is that market is not yet aware of something that will happen.

Check list to see if the company really is cheap

The following list should be checked if you bump into company that looks very cheap with relative valuation: cheap P/E, EV/EBIT, P/BV etc. ratios:

  • Does the drop in earnings seem obvious (bad competitive position, cyclical fluctuations downwards inevitable in the future for the whole industry, no superior competitive strengths that would protect from future competition etc.)?
  • Are there some signs in the owner structure that might weaken the position of company in the long-term (main owners might want to take all the cash out of the company etc. with transfer pricing – in situation where unlisted parent company owns listed daughter company is always a very big risk – especially if they have common business and therefore room for overpriced transfer pricing in transactions)?
  • Are there any other features that may weaken the position of a company in the future?

Summary

  • Use long-term investment horizon when setting the target price and recommendation.
  • Use complete yet understandable arguments to explain why you have ended up to your recommendation.
  • Don’t set recommendation separately from the other companies (MCR and scatter lists).
  • Don’t use only one method to value the target price.
  • Check that the DCF-value is in the line with your recommendation (adjust fair value if possible, if not possible (requires unrealistic future estimates) then rethink and adjust target price and recomm.).
  • There is not one right way to value the price of a company, thus use many methods. Use relative and absolute valuation and try to find hidden strengths and weaknesses that market may not know yet. Based on these decide (long-term) target price.

General instructions for providing comments in company specific forums

What should be written in company forums?

1) Comments on estimates

The most important thing in company forums is to provide arguments about your estimates. Your estimates are reliable only if you tell what they are based on – especially if you do not have a very long track record and thus people cannot see that your estimates have been very accurate in the past. With good estimate comments users cannot only see what facts support the current estimate but also the risks, possible range of outcomes etc.

Historical figures: comparability

Sometimes you have to describe also the past so that people could understand the estimates: Some companies have also had some restructuring or other major changes in the past meaning that past financial performance is not very good indication for future financial performance and these things should be described.

Adjustments

If you have adjusted the company figures somehow e.g. by transferring some capital gains or other non-recurring items from EBIT to Extra Ordinary Items, then this should of course be explained very clearly (with own company forum message which header could be like: “Adjustments made to 2004/Q3 income statement…”). You should not only tell clearly what you have done but also the arguments for doing it.

2) Market position, competitors, competitive advantages…

Besides estimate comments you can describe any other essential things within the valuation of your target company. Those things include e.g. competitors, market position of the company, competitive advantages, historical track record and credibility of current management etc.

3) Something new like…

If you want to be pro then you can try to satisfy the needs of institutional investors and their fund managers. They always require analysts to “Tell me something new!”. Fund managers and sell-side analysts typically know their domestic target companies rather well and they get masses of sell-side equity research from big companies. Therefore they have normally heard all the normal stuff. They call attention only to something that has not been told them already.

So what kind of things might interesting and worth mentioning in the forum:

1) Down-to-earth comments of the competitive edge of a complex and not-so-well-known product (like Basware) => why is it competitive, how close are the competitors, how big market will they have ahead?
2) Effects of new technology in certain industry (up to revenue and margin level) like VOIP, wlan or push-to-talk in operator business => will almost all voice get into data networks and when, what does it mean to operator revenues and margins?
3) What are the real consequences in sales and ebit levels of certain transactions like when Tietoenator gets lots of IT-outsourcing contracts => how profitable contracts are they in the long run, how much of them will we see in the future?
4) What kind of growth opportunities certain companies will have in the foreign markets and why would their product offering be competitive there (like: Ponsse in Russia, Kesko in Baltics etc.)
5) Company X will reveal such figures that have not been expected as current EPS consensus estimate for next year is and EPS has to be at least, because…
6) Next year P/E would be lower than it has ever been, lower than any other company within the same industry and this company has always been valued higher than peer group, because…
7) This reconstruction would mean that company EBIT will double, meaning that ROI would rise to around 30 % and as the P/BV is currently only little more than 1 => the company will double its share price if and when the P/BV will rise to the same level as all the other companies producing that kind return.

Like you and me, institutional investors also like concrete things: they are perhaps not excited about your story how some technology will change the world. But they would like to hear it if you can also tell how it changes the figures of a certain company, at what level the valuation figures (like P/E, EV/EBIT, P/BV) will be after these changes have happened, how and when this change will happen and what are the proofs of it. So if you can tell with solid and understandable arguments why the share price of a certain company will rise more than 30% then you will be heard.

Do not put news on the forum

The company forums are not a news channel. So do not copy-paste many company press releases on the forum (or even big clips from them). There are different organizations and companies inside the media sector that are much better in these operations – so leave it to them. Besides: if we all would put many press releases on the company forum, it would be 90% full of them and important things would not stand out. Of course you can and perhaps even sometimes should quote some important things from those press releases – at least if you also tell your own comments on them: how this is going to change the company figures or affect valuation/share price in the long-run.

Commenting company news or rumours

Of course you can inform investors about some major news in the forum, but only in those cases where you have something to comment on the news: if your company has made a major acquisition you can tell whether you see it affecting positively or negatively on the share price and especially why it does so and how big the effect would be (with quantitative comments). If the news do not affect share price, then why bother commenting them. Only in those cases where media tells some negative news about the company with big headlines and you think that those news do not affect the company´s financials, you  should comment on it on the forum. Thereby you have important message: “do not believe in the media, this event is not important for the share price” or “this persistent rumour is not likely to be true or happen”.

To sum up: If there is news from the company, but you do not believe it is important or you have nothing to say about it, you would only echo the news from the media, then do not write anything. For company releases we have the the company website address on background page. Remember that investors follow media themselves, analysts should not try to repeat news but to point out and analyse the most important things – whether they have been in media or not.

Example of initial forum comment: see the demo analysis

How should the comments be formulated?

Try to be brief with your comments. Use headlines also inside forum messages to make the text more readable and to enable reader to choose/skip parts that are interesting/non-interesting for him/her at the moment. Also providing summaries at the top is a very good habit. To save your time and enhance the readability of the comment, it is highly recommended to use the template forum comments. See instructions from “Guide for editing forum comment text”.

Remember that many investors browse ranking lists and multi-criteria rankings and as they find plenty of interesting companies they quickly browse their figures and comments on their figures. Thereby they are not very happy if the essential things like solid grounds for current year result or information from competition and competitive weeknesses and strengths are hard to find from the text. Already forum message headings should include the most essential things. Plenty of unrelevent forum messages hinder that the investor does not even find the right message.

Of course you can also write long comments and thoroughful information about some things. That kind of information is of course valuable in some cases and for some users, just ensure with the above means (headings, sub headings, summaries etc.) that you serve also busy investors.

To add images inside your forum-messages: See instructions from “Guide for using graphs and images in forum comments”

To have ready-made formatting and graphs to your forum-messages: Use the template forum comment, see instructions from “Guide for editing forum comment text”.