1.0 Introduction to Craigs Institutional Research
Craigs Investment Partners Limited ARBN 143 656 437 (“Craigs” or “we” or “our”) is the holder of an Australian financial services licence no. 363407 and as such is regulated under the Corporations Act 2001 and applicable ASIC guidance, including:
- ASIC Regulatory Guide 79 Research report providers: Improving the quality of investment research;
- ASIC Regulatory Guide 264 Sell-side Research.
We have a number of internal policies and procedures that are designed to maintain the integrity and independence of the research we provide. This information document sets out a summary of some of these measures as well as an explanation of the approach we take when producing research in our role as research report provider. It is supplemented by the Research Disclosures included on our website at www.craigsip.com/Disclosures.
1.1 Scope of Craigs Research Reports
This document applies to research reports prepared by Craigs Institutional Research (“Craigs Research”) that are distributed in Australia (“Research Reports”).
In Australia, our research reports are intended for our wholesale clients, and not retail clients or members of the general public.
To be deemed a Research Report for the purpose of this document, a report must:
- be in writing;
- include an opinion, express or implicit, about a named or readily identifiable product;
- be intended for broad distribution across the Craigs Institutional client base.
A Research Report will not include the following:
- Economic or thematic reports that do not give an opinion in relation to any specific financial products;
- Emails or similar communications prepared by Craigs financial advisers or other staff who are not members of the Craigs Research team;
- Information sheets concerning financial products which do not include price targets or investment recommendations;
- Reports prepared for individuals or small groups of clients, and not for general distribution.
Please note that Craigs Research Reports contain general advice only and are not tailored to any particular client or client type.
1.2 Team Structure
The supervisory and management structure of the Craigs Research Department has been organised to insulate it from non-Research Department staff. Members of the Institutional Research Department may not report to anyone outside of Institutional Research.
The Craigs Institutional Research Department’s supervisory structure is as follows:
Craigs Institutional Research department consists of:
Institutional Research is prepared by research analysts who are segregated (physically and technologically) from staff performing Investment Banking or sales functions.
1.3 Our Analysts
Craigs Research Analysts are suitably qualified with degree or higher-level qualifications and/or suitable relevant industry experience.
A typical Senior Analyst will be responsible for covering 10-13 securities. They are supported by the other analysts in the team, and the Head of Institutional Research keeps the coverage lists under review to ensure that the team is sufficiently resourced to maintain the high-quality standards expected of the team.
1.4 Research Independence
Our Analysts must observe high standards of integrity and ethical behaviour, and the contents of their Research Reports must reflect the honest and independent belief of the Research Analyst, presented in a manner which is fair, clear and not misleading. Analysts are required to ensure that they have a reasonable basis for their analysis and recommendations, and this is supported by various policies and procedures including a rigorous peer review process.
In addition to holding our Analysts to these high standards, Craigs also seeks to ensure that Craigs Research is protected from any undue pressure from other parts of the business including Corporate Finance, Sales and Trading teams.
Institutional Research analysts must present an independent view of their subject matter, free from inappropriate influence of other interests within Craigs including the Corporate Finance, Sales and Trading teams.
Care is taken to ensure that no one places pressure on analysts to alter the contents or timing of a Research Report or statement made at a public appearance. Analysts are required to promptly report any attempted coercion or influence to Compliance.
2.0 Research Methodology and Approach
This section summarises the approach and methodology of the Craigs Institutional Research Department.
2.1 Methodology and Ratings Scale
We use a variety of methodologies to arrive at a valuation including discounted cash flow and other valuation multiples methodologies. Generally, all our Research Reports will include a 12-month target price for the relevant security. Typically, the target price methodology will commonly be stated on the front page of the report, with further analysis, metrics and our investment thesis (including the company’s outlook, valuation and relevant risks) set out in the body of the research report.
The following table sets out our equities ratings scale:
2.2 Reliability of Reports
While Craigs aims to prepare Research Reports using a consistent methodology, the differences between companies, scale, industries, jurisdictions and many other factors mean that this will not always be possible.
In preparing Research Reports, Craigs Analysts are heavily reliant on information provided by the relevant company, whether by way of annual reports, meetings with company management, or company announcements made under the continuous disclosure regime. While the relevant companies will usually be under legal obligations to provide accurate information, there will often be no way for Craigs Research to independently verify relevant data.
Similarly, when providing price targets and other forward-looking statements, Analysts are making assumptions about future events, many of which are based on the Analyst’s own judgement based on factors such as representations from the subject company or the continuation of past trends (including past performance of the company). Past performance is often not representative of future performance, and there are many factors that cannot be foreseen or forecast. All any Analyst can do is apply their expertise and experience to the information available at the time that the relevant report is prepared, and at no time does Craigs Research ever provide any guarantee or warranty as to future performance of a company.
2.3 Coverage List and Historical Ratings
When reading a Research Report, it can be useful to refer to past publications on the same company. Similarly, care should be taken to ensure that the report being read is the most current publication. Our Research Disclosures page contains a list of all securities currently covered by Craigs Research as well as a list of previous reports and target prices over the past two years.
2.4 Coverage Decisions
Decisions to initiate, resume, suspend or discontinue research coverage of an issuer are made by the Head of Institutional Research in conjunction with the research analyst concerned.
Factors taken into account include:
- the investment outlook for the security, the relevant industry and the sector;
- the attractiveness of the investment for clients and potential clients;
- the liquidity of the security, and the ability of clients and potential clients to trade the security;
- the demand for research into the company based upon the extent of existing coverage in the market
- the demand for research into the company based on holdings of Craigs clients and potential clients;
- the capital requirements of the company, and potential opportunities for future investment via capital raising;
- any conflicts of interest, real or perceived.
While all coverage decisions are made by Craigs Research, it is permitted to take into account input from other business areas, including Investment Banking, Sales and Trading.
The Investment Banking, Sales and Trading teams have the closest relationships with Craigs Institutional clients and are therefore best placed to give feedback on the coverage that would be most valuable to those clients. While research independence is always paramount, the viability of the Craigs Research team is dependent on its ability to support the Craigs business as a whole.
It should be noted that Craigs Research will generally look to cover securities that it believes represent good investment prospects for clients, or which clients hold and value independent analysis thereof.
3.0 Conflicts and Disclosures
In the context of the provision of services to our clients, conflicts of interest may arise as a result of a number of factors including:
- the relationship between Craigs staff, including research analysts, and the researched company, including the holding of financial interests by staff, or undue pressure being applied to an Analyst by the company;
- the relationship between other parts of the Craigs business and the Researched Company, including the potential for undue pressure being applied to an Analyst by the Investment Banking team, or through their remuneration;
- the access of Craigs Research to confidential or material non-public information.
Conflicts of interest may be direct or indirect and can be managed through:
- appropriate controls;
- conflict avoidance; and
3.1 Specific Disclosures
Research Analysts are restricted from holding roles or interests that could prejudice, or appear to prejudice the independence of their research or conflict with their duties to the recipients of their research. Some specific restrictions are outlined below.
- Disclosure of Analyst interests in the company
Analysts are required to disclose any relevant interests that they hold in the company which is the subject of coverage. Any such interests will be disclosed in the relevant Research Report.
- Disclosure of other interests in the company
Craigs will also disclose instances where:
a. a Craigs staff member is a director of the researched company; or
b. Craigs or its associates hold 5% or more of the financial products of a researched company.
- Trading in financial products the subject of research
Craigs does not permit Research Analysts to trade in the companies which they cover.
- Analysts assisting Investment Banking
Research Analysts may be required to perform other duties including providing the Investment Banking team with analysis of current and potential corporate clients. Any conflicts relating to this will be managed by complying with relevant regulatory guidance including RG 264.
Where this involvement exposes Research Analysts to inside information, information barriers are used to ensure that the analyst does not trade in the financial products of the company, does not pass on the inside information and does not publish research until the relevant information is publicly available.
Analyst compensation is designed to promote independence and high-quality content.
Research Analyst remuneration consists of a base salary and a discretionary bonus. Factors which may be relevant in determining remuneration and bonuses include:
- the Research Analyst’s performance and productivity;
- the quality of the Analyst’s research;
- evaluations from clients, both internal and external;
- overall business profitability.
Remuneration is decided by Craigs’ remuneration committee. Advisory staff, corporate finance staff and institutional equities staff do not determine Research Analyst remuneration.