Looking outside to forecast earnings

Business Times - 20 Aug 2010
BT-STARMINE AWARDS

Daiwa Capital Markets' Chris Sanda, a veteran analyst and top earnings estimator, shares his view with LYNETTE KHOO on what it requires to be a good analyst
WHEN it comes to earnings forecast, the answers are not always found in the excel spreadsheets laboriously drawn up by analysts, or the line items on the company's balance sheets. The answers are often found right outside the company.
Failing to pay attention to the external signals means that one could be missing the woods for the tree, one StarMine award-winning analyst believes.
'I find that accuracy is not necessarily happening because of my earnings model per se. The answer is not in the excel spreadsheet. The answer is outside the excel spreadsheet and asking people who really know this industry - people who do this day in day out. So, these are the suppliers, the vendors, the customers and the competitors within the industry,' says Chris Sanda, senior investment analyst at Daiwa Capital Markets Singapore.
'You could stare at the company when all the action is happening behind you and the rest of the world and any form of action that is happening within the company is a reflection of a much bigger trend,' the veteran analyst said.
For his 2009 recommendations and estimates, Mr Sanda is ranked No 1 earnings estimator for the industrials sector, the No 2 stock picker for retail and consumer products sector, and the No 3 stock picker for the industrials sector at the BT-StarMine Analyst Awards 2010.
He believes his earnings models are 'very much like everyone else's'. The difference that sets analysts apart lies in the assumptions they arrive at based on public information.
This is why he believes being a good listener and keeping abreast of the latest information are key traits an analyst should possess.
Noble experience
For earnings estimates of industrials stocks, Mr Sanda is ranked first of 25 analysts covering Sembcorp Marine, second of 16 analysts covering Sembcorp Industries and fourth of 13 analysts covering Noble Group.
He recalls how he was very bullish on Noble and sticking to a 'buy' rating when most analysts were bearish on the stock.
Noble was a 'very misunderstood' stock, he says.
'It was very easy to envision big problems happening for that company because it is very leveraged and there has been margins fall. But the reality is they are a well-managed company that can manage its business spreads and their debt isn't a necessity of how they finance their working capital,' Mr Sanda explains.
Constant curiosity
These observations came as a result of keeping his ears close to the ground to understand how the company operates.
Mr Sanda started out in this industry since 1996 as a buy-side analyst with various firms before joining Daiwa three years ago on the sell-side.
He believes that the stamina to remain in this job is having the curiosity to know what makes companies tick.
'One needs to be a constant student of business and have the type of mind that is constantly curious,' he says. This, perhaps, is exactly what motivates him despite the hard reality of his job.
'The reality is we are the poor bankers. We don't get paid as much as others. We work longer hours but we get less credit than others,' Mr Sanda puts it candidly.
'We have to do a lot of different tasks that, at times, are not that fun - sometimes, data entry, rehashing of numbers or making repetitive calls late into the night and working with very little sleep. If one looks forward to all these factors and still wants to come back to do it, there is always room for people who want that kind of 'punishment'.
'But I am those type of people,' he quips. 'I'm a curious person and I want to know what makes these companies tick. I get a rise out of being right and it frustrates me when I'm wrong. And that's the way it should be. You need to care and keep trying and trying again.'