SD-02.2 — Fundamental Equity Research

Business Domain: BD-02 Securities Research & Selection (Front office) · Applies: PUB

Purpose

Analyses a listed-equity issuer on its fundamentals to form a research view and an intrinsic-value estimate. Fundamental equity research is the depth capability of BD-02: it takes a candidate from the idea pipeline, builds an understanding of the business and a forecast of its performance, and converts that forecast into a value the security can be judged against. It produces the research view and the valuation; the buy / sell / hold decision built on them is SD-02.5.

Service Operations

Understand the business — industry and competitive analysis, corporate-strategy review, and assessment of the issuer’s economic moat and management.
Assess earnings quality — analyse the financial statements for accounting red flags and earnings management.
Build and maintain the financial model — the three-statement model that projects the issuer’s results.
Forecast company performance — project future results, top-down (consuming the house view) or bottom-up.
Value the security — apply absolute valuation (discounted cash flow, residual income) and relative valuation (the method of comparables) to an intrinsic-value estimate, with sensitivity analysis.
Integrate material ESG factors — assess the industry-material sustainability factors and reflect them in the forecast and discount-rate assumptions.
Author the research note — record the analysis, the valuation and the view as the research artefact.

Inputs and outputs

Inputs: the research set (SD-02.1); company filings and disclosures; management meetings and corporate access (SD-02.7); ESG data from BD-13; the house view (SD-01.3); market data.
Outputs: the financial model, an intrinsic-value estimate and a research note — consumed by SD-02.5 (the recommendation), SD-02.6 (the thesis) and the portfolio managers of BD-05.

Entities

Consumes: Listed Equity (PB-01), Legal Entity (E-01, the issuer), Price & Market Data (E-08); ESG data sourced through BD-13; the SD-01.3 house view; the SD-02.1 research set; the SD-02.7 management meetings and corporate access.
Owns: none — the financial model and research note are analytical artefacts. Whether a Research Note warrants a first-class entity is open.

Standards

The CFA Institute equity-valuation process (understand the business → forecast → select a model → value → apply) and Standard V (the reasonable and adequate basis for a recommendation). SASB Standards for the industry-material ESG factors integrated into the valuation.

Open extensions

A Research Note entity.
Short-thesis research as an explicit operation for the long/short archetype.