Author:  Patrick Houston Media Specialist Sales, ABN Amro

The Role of the Media Analyst

Although media analysts do not play any direct role in the financing of British films, they help to create the investment environment in which institutional and individual investing decisions will take place. Their role is to analyse the companies that make up the media market and advise clients on the prospects for those businesses and industries over the short, medium and long-terms. This involves following around 80 companies in the worldwide media sector and looking closely at their share price prospects based on careful analysis of the market and any other information that the analyst can obtain from their contacts.

Analysts work on both the buying and selling sides of the banks for which they work. The sell-side analyst will discuss his recommendations with buy-side analysts who are representing clients with funds to invest. If, following this discussion, the buyer wishes to complete the transaction they will contact a market-maker for those shares who will be able to complete the deal. The analyst will also speak to colleagues in the bank's corporate finance department but strict Chinese Walls are operated to ensure that no price sensitive insider information can be passed between the two sides of the institution.

To be successful, analysts must have great contacts within their sector and know how to search out pieces of information that are not widely available to the rest of the market. They have to be questioning and cynical but also have the skills of accountants, management consultants, futurologists and prophets. They must also be able to distil huge amounts of information and communicate it well and with courage and tenacity.

Integrated Investment Banks

The major integrated investment banks are responsible, in one way or another, for most of the investment that takes place within the UK economy. They have a number of different roles:

dealing in equities
• Treasury functions: dealing in Government bonds and currencies
• asset and wealth management
• mergers and acquisitions
• specialised financing (eg. of industries with particular financial requirements)
• lending

Their clients include any person or company that might be involved in investing in any of these ways including, life assurance companies, pension funds, unit trusts, hedge funds and private equity investors. The time scales for investment vary considerably from pension funds, in which money can be tied up for forty years, to overnight investments used to generate interest on company's short-term cash holdings.

The Tools of the Trade

The analyst uses a number of different sources of information for finding out how companies are doing and what their prospects might be (and what this might mean for the share price). Many of these sources are publicly available:

annual report and accounts
• company results (published quarterly for larger companies)
• company statements - through contacts, conference calls and webcasts to the investment community
• company newsletters
• on-line chatrooms, often dominated by the opinions of disgruntled employees

The art of being a good analyst is to supplement these public sources with other information gleaned from contacts within the industry and individual companies, including competitors. The most important thing to remember is that share prices are more often set on the basis of ignorance rather than knowledge. Also, the herd is seldom right for long - it is the analyst who manages to anticipate a move that runs counter to the prevailing understanding of the market or which bucks the trend who will achieve the best results.

How Share Prices are Set

Share prices are influenced by factors affecting the whole economy and by characteristics of the individual companies and market sectors in which they operate. The two main economic factors are the overall state of the UK and world economies and the level of liquidity available for investment within the economy. Important factors within companies are:

the business opportunities available
• any threats facing them in the marketplace
• the reliability and track record of the management team
• the historic performance of the company in terms of generating profits and paying dividends
• the level of trust in the company and its management to continue to deliver results
• rumours about the company and its prospects

When reviewing the valuations of individual companies, the analyst will use two key tools: a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis and a "5 Forces" analysis to assess the level of competitive advantage enjoyed by a company. The 5 Forces reviewed are: threat of new entrants; challenge from substitutes; bargaining power of suppliers; bargaining power with customers; the competitive position of any rivals in the market.

Top Tips

• Media analysts help to create the investment environment in which institutional and individual investing decisions will take place.
• To be successful, analysts must have great contacts and have the skills of accountants, management consultants, futurologists and prophets. They must be able to distil huge amounts of information and communicate it with courage and tenacity.
• Share prices are more often set on the basis of ignorance than knowledge.
• The analyst who manages to anticipate a move that runs counter to the prevailing understanding of the market or which bucks the trend will often achieve the best results.