Equity Analyst Site Visits

i do realize the answer/assumptions of the information below vary to some degree from country to country, as well as from organization to organization

In order to analyze companies better which employee/s:-

Junior Analyst
Associate Analyst
Research Analyst
Fund Manager/Portfolio Manager (yes i realize that the Buy Side depends upon the Sell Side research to some degree)

or is it some other employee from some other department, either the PR, sales or risk (i know it is very unlikely but still, is it possible?)

conduct company site visits and if they do so, what do they do during these site visits? Is it just a meeting to maintain communications or is it that they actually analyze the company on their visits? For example if it a manufacturing concern do they actually look at what is being produced and why (but to do that properly wouldn't they need to have the same knowledge as ISO auditors and other details regarding the manufacturing process, materials, etc) and if it is a services oriented business then are the company's processes analyzed, the culture within a company and their manner of management in terms of employee performance measurement, its impact on customer satisfaction, etc?

(I do realize that such detail is probably more of a consulting firm's manner of analyzing a business because i have done the same myself or a Bank's corporate relationship manager for loan approvals, but still i would like to know if similar activities are done by analysts and if they are different, then exactly how are they different?)

also, are company visits carried out by:-
Brokerage firms
asset management firms
Investment banks
or all of them

I am asking this because I read about it in an article once (cannot find it now) as well as on the websites of Morgan Stanley and KeyBank, I just want to understand the ground reality of these site visits by analysts

 

The more you the better...

For example last night I watched an analyst discuss why refineries are shutting down in the cold snap, and he was discussing various instruments freezing up and things like this. It's one thing to read about stuff and talk about it on the phone, but its a whole other game when you get out there and actually see things working with your own eyes. Do analysts NEED to make these trips? Not usually. Do they help in their understanding of the sector/company? Absolutely!

I'd say it's kinda like going from school to the workplace. Sure, you think you know so much after your degree, but then you get to an office and suddenly there's so much shit you've never considered that you might as have skipped the degree altogether (or so it feels)

 
Best Response

It will vary by firm/investment style, but for a fundamental shop site visits are extremely important. Research analysts are the main ones doing these, but occasionally more junior (e.g. Research Associates) will do some as well (particularly for small caps). PMs generally don't have the time, so they'll spend more of their travel time at conferences where they can hear from many cos. They rely on their analysts for the on-the-ground stuff.

What you're looking for, again, depends on investment style. I'm usually looking at the operations to understand where there's slack capacity, growth potential, how the plant manager (or division president etc.) thinks about his markets, customers, competitors, pricing, input costs etc. It can also be really helpful because a lot of the time the CEO, CFO, etc. will ride along so you get to spend basically a full day talking about their business, which you'd never get to do in a 30 minute 1x1 at some conference or an hour long roadshow visit in your office. Also, when you get to talk to the mid-level managers, that can be extremely useful because they aren't as well "coached" by the sell-side on what investors want to hear. E.g. they won't talk all day about how they're focused on cash flow and ROIC, but instead they'll tell you how their guys went on strike last month and shut down the plant for 3 days -- much more relevant/useful imho.

 

@jankynoname

@woodywoodford

sounds pretty much the same way it is done by some research analysts in my country ... but what I specifically want to know is that - a consultant will go deep into the actual manner of production, look at the problem in the manufacturing plant or the processes of a services company, following which he/she will develop a detailed step by step solution which the consultant will help to implement... so will an analyst go into such detail or just talk to the management (upper, middle, lower) the manner in which you all described?

for example, analysts in my country will mostly speak (either on the phone or during an office visit) to the management of, let us say, a cement manufacturer.... the management of the cement manufacturer will tell the analyst "we have started using tire derived fuel instead of coal because it is cheaper and generates more heat" and the analyst will most probably at most ask some contacts in the energy sector about their opinion but site visits are unlikely and checking up on this fact with Chemical Engineers (who are primarily researchers or academics devoid of any bias) will also be unlikely and nor will the analyst really check up upon any research or case studies regarding use of tires as fuel ... but that is how it is mostly done in my country

but what about other countries? will an analyst ever visit the plant to actually see the tire being used as fuel with it actually generating enough heat without any adverse effects upon the working conditions, fuel storage, machinery, etc? or will the management's word be taken as the only necessary information?

 

Haha it's funny you use cement as an example because I actually cover the cement cos (along with broader building products/homebuilders etc.). Are you in Egypt btw? I know Cemex is using a lot of tires there now.

To answer your question, I'd say no, I'm not spending a lot of time trying to "optimize" their process. Generally we try to avoid telling people how they should run their business. We're not consultants (and I'd add most consultants probably add close to zero value). I mean these guys have often been doing this for 30+ years so it's not like we can come in after spending a few hours onsite and make some illuminating suggestion that changes the way they approach it. I do want to understand how attractive the business & assets are relative to others (both currently and potential down the road). I also want to understand if management actively sees ways that their industry/business might transform itself -- eg "catalysts". That's just my prospective from a big long-only. Other firms might be different -- in particular I'm sure PEs are much more hands-on.

 

thanks ... just wanted to confirm what i had assumed .. but do you think most countries do it the pretty much the same way you have described?

as for consultants, they are useful for mismanaged businesses or start-ups or some businesses going for some venture that is beyond their current employee's skills sets/company resources or some highly complex field or businesses that lack skilled workers even for basic operations

but apart from that in most cases consultants are useless for relatively standard businesses like cement, agri products and other mills, etc

not in Egypt though

 
ProTDR:
So I just contacted a school alumni for an informational interview. He's a VP of equity derivatives trading at a BB, same BB that I work at just not in S&T. He asked that it would be better if I come in to visit the trading desk sometime in January when it's not so slow.

Does anyone have any advice on impressing the VP and hopefully land an interview/job offer? Besides staying up to date on the current market and dress appropriately (shirt and dress pants?), what else can I do to show him that I'm passionate about trading and that I'm not just a stupid kid who wants to get into S&T because it's a glamorous position.

If you want an interview for a position, you need to ask him for it. Show interest, ask questions while you're hanging out and then take the plunge and let him know that this is what you want to do, and ask him what you can do to make it happen.

 

I think this is a good summary/plan of attack to things you should know.

Company/Desk Knowledge Understand/ask about how the desk works. Do they cover a particular sector? Do they cover Specific accounts? A particular strategy (Merger Arb). Understand how the desks make money and the various roles on a desk.

Product Knowledge basic options strategies Directional/volatility/hedging. Make sure you know the difference verticle/horizontal/diagonal spreads know your greeks. Understand how markets are made for clients and the basics behind option pricing.

Market Knowledge Know what Macro factors are driving the market (currently US QE2, Tax Cuts, European peripheral spreads, china inflation)

Sector/Micro Knowledge Understand the catalysts driving particular sectors. Understand corporate finance basics behind company valuation.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

t4s thats an awesome summary. Now how many new trading recruits knew any of that? All the traders Ive talked to (unless they were some type of finance/econ major) had almost no knowledge of the above. But it is a tough market and you are trying to impress so that would be a good list.

 

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