Focus on Equity Research sector

A classic investment banking division, equity research, which represents a multi-billion dollar industry for investment banks, aims to provide the market with valuable information on companies, sectors and market trends. Let's take a look at this business at the border between corporate finance and financial markets.

What is equity research?

The objective of equity research analysts is to produce reports and recommendations on various investment opportunities in a given sector (healthcare, new technologies, energy, etc.) that may be of interest to investment funds, financial institutions, or investment banks themselves, and more specifically their Sales & Trading divisions.

The main mission of these teams is to provide investors with detailed financial analysis and recommendations on whether to sell, hold or buy a particular investment.

Equity research teams are generally divided by sector and cover similar or similar companies in order to develop a real expertise in the field. Indeed, most of the sectors have many specificities that need to be mastered after several years.

Among the sectors mentioned above, we find the very classic telecommunications, technology, commodities, business services and financial services.

What are the main tasks in equity research?

The day-to-day work of an equity research analyst consists of producing full reports or analysis notes at a rapid pace. Analysts and associates are also required to perform financial modeling work using software such as Bloomberg.

Generally speaking, an equity research report takes the form of a one-page note presenting various elements:

• A global analysis of the industry and the market in which the target company operates: this section includes the various trends at work (political, economic, social, technological) as well as the target's competitors. Strategic concepts can be used such as Porter's 5 forces, SWOT analysis or PESTEL analysis.

• Macro-economic and geopolitical trends that may impact the company

• The various historical financial results and forecasts are also an important part of the various analysis reports. Indeed, through the analysis and comparison of expected and actual results, analysts can provide valuable recommendations as to the probable evolution of the share price.

• As far as forecasts are concerned, there are generally 2 main methods that analysts use on a daily basis: the top-down forecast, which starts from a very macro-economic approach to arrive at the company's probable revenues. On the other hand, there is the bottom-up process, which starts with the company's sources of revenue, and ends with the revenue forecasts.

• The company's management: a key point in any research report, the description of the company's management represents the added value of equity research analysts because they often have privileged access to the various management teams through multiple calls, site visits or meetings.

• A company valuation based on different methods (DCF, Trading comps, Precedent transactions).

• Finally, a buy, hold or sell recommendation that concludes the analysis note.

Read more : What is a takeover bid ?

Who are the players in equity research?

Equity research being a division in its own right in investment banking, it is not surprising to find among the heavyweights of the sector the world's largest banks (also known as Bulge Brackets) such as Morgan Stanley, UBS, Goldman Sachs, Barclays, Credit Suisse, Bank of America, JP Morgan, as well as the French BNP Paribas, Société Générale, CACIB or Oddo.

Smaller M&A boutiques or investment banks also have equity research departments that are often more specialized in the bank's area of expertise.

Finally, there are a few pure-players in the field offering equity research studies directly to investors and other financial professionals. These include Alpha Value, CFRA, Atom Finance and StockGround.

How to break into the elitist world of equity research?

Unsurprisingly, the equity research profession, although less renowned than M&A or private equity, remains a popular field of activity and therefore in high demand! Students from the best French business schools and foreign universities will be in the best position to land an internship or a permanent contract. In addition, a person wishing to gain experience in equity research will need to demonstrate strong financial modeling skills, be proficient in Excel and the Office suite, and show interest in one or more specific research areas in which he or she may need to specialize.

Read more : Venture Capital : definition, remunerations and recruitement

To conclude

Equity research is a very stimulating and formative field of activity that is often overlooked by students to the detriment of M&A, private equity or trading room jobs. If you are both interested in the dynamism of the financial markets and attached to the financial analysis specific to corporate finance, equity research could be the good compromise you are looking for!