RISK MANAGEMENT

Why Research Matters
in the Equities Space

niel-venter-thumb

Niel Venter

Head: Equity Research
Absa Corporate and Investment Banking

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Equity research analysts deliver a vital service to South Africa’s institutional investors – but how do they know whose analysis to trust?

When it comes to equities and investments, everybody has an opinion. But while some private investors might feel comfortable taking a chance on a gut feeling or a hot tip from a friend at a braai, institutional investors insist on having reliable, well-researched recommendations from experienced and qualified professionals. As they should.

That’s where equity research analysts come into the picture. “Our equity research analysts, or financial statement analysts, look at listed companies – on the JSE and Pan-African – and analyse those companies, their industries, and the various local and global issues and factors that will impact their future,” says Niel Venter, Head of Equity Research at Absa Group.

“We also gather information from unlisted companies and include that in our analysis to provide a broader view of the industry,” he adds. “Based on our analysis we produce a research report, which includes a recommendation to buy, hold or sell shares in the company, as well as a target price (what it’s selling for and what we believe it’s worth) and earnings forecasts.”

That research product is sold to Absa’s institutional clients, who purchase similar reports from other brokers and use the information to develop their own recommendations for buying and selling shares.

Financial Mail Top Analyst Awards

How do clients know whose research to trust? “In any industry, everybody will tell you that their product is the best,” says Venter. “Financial analysis is no different. That’s why you need a scorecard, available to the public, that provides an independent ranking system.”

The Financial Mail Top Analyst Awards provide that ranking. The awards – which mark their 47th year in 2023 – are based on a survey, which the Financial Mail says is believed to be the longest-running survey of its kind in the world. Consulting firm Intellidex conducts that survey through confidential questionnaires that cover about 90% of South Africa’s institutional stockbroking market, providing a reliable and independent ranking of skills.

The awards are comprehensive. In 2022 the survey assessed 27 firms across 40 research and six non-research categories, with numerous analysts ranked within various sectors – from General Mining to Luxury Goods; and within a range of categories, from Quantitative Analysis to Risk Management. For each research sector, respondents were asked to rank the five best firms and five best analysts, based on set criteria.

“There’s a direct correlation between how much a firm gets paid and the rankings of its analysts,” says Venter. “Our clients keep a close eye on the awards – and especially on the Top 5 rankings in each category. If you don’t win a category but most of your analysts achieve a Top 5 ranking, that’s also significant.”

niel-venter-thumb
Niel Venter

Head: Equity Research Absa Corporate and Investment Banking

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