EQUITY RESEARCH

Company valuations and the investment recommendations derived from them are prepared with the greatest care and take account of all relevant facts identifiable at the time. The analysts have a high level of expertise at the sector and company levels which allows them to make qualified judgements, including of those factors that are not quantifiable.

Stock analysis is model-based. For most companies profit and loss accounts, balance sheets and cash flow statements are forecast explicitly and projected over several years into the future. A combination of methods is used for the valuation of the companies and for the assessment of the future share-price performance. The appraisal of the outcomes of the different valuation methods arrives at a theoretical value for a company, the so-called “fair value.” An assessment of the future share-price performance is arrived at taking into account additional factors such as the information stimuli that may be expected and the supply and demand situation in the market.

Discounted cash flow method (DCF): Using the DCF method a company’s absolute value is determined by discounting all expected cash flows that the company concerned earns in the future. DCF methods are used as standard. A DCF calculation is integrated in the balance sheet models.

Transaction value method: This method is used if comparable companies or parts of a company have been sold near the time of the valuation and if the transaction price is known. Taking certain adjustments into account, this price can be used as a reference price.

Sum-of-the-parts valuation: The total value of the company is inferred from the value of its individual parts or of its subsidiaries and equity investments. The valuation method that is appropriate for each part of the company may be used.

Analyses of peer-group comparisons: These are relative valuation methods with which a company’s valuation ratios are related to those of comparable companies in order to identify any over or undervaluation. In addition, the analysts use other methods that are appropriate for a specific situation or sector.