Equity Research

Agenda

Sell-side overview – Models, reports, meetings

– Marketing, IPO research

– Pros and cons of being an analyst

– Criticism

Buy-side overview – Equity research and portfolio

management

– Key traps on buy-side

– Public analytics on buy-side

Q&A – Personal qualities, lifestyle

– Recruiting, interviews, internships

– …

Participants

Andrew Kucherov

MAE-2008, Grandis Capital

Valentina Bogomolova MAE-2005, Uralsib Capital

Mikhail Ganelin MiF-2009, Troika Dialog

Vladislav Nigmatullin MAE-2004

Sergey Arinin J.P. Morgan

Valentin Preobrazhensky MiF-2009, Avega Capital

Alexei Debelov MAE-2004, Third Rome

Evgeniy Grigoriev MAE-2005, VTB Capital IM

Madina Baikadamova MAE-2011, Renaissance Capital

Denis Inchenkov MAE-2011, Da Vinci

Stanislav Kondratiev MAE-2011, Uralsib Capital

Irina Nazarova MAE-2011, J.P. Morgan

Anton Onishchuck MAE-2010, Da Vinci

Ilya Piterskiy MAE-2010, Deutsche Bank

Ilya Potapkin MAE-2011, Wermuth AM

Alexander Semeyko MAE-2011, Troika Dialog AM

Sell-side overview

Andrew Kucherov

MAE-2008

Current: Grandis Capital

Past: Bank of Moscow, MDM Bank

Models and ideas of some core forecasting techniques

Key question – what is the real fair value? Company financial model: revenue costs CAPEX DCF model: terminal growth rate WACC Multiples model: target multiple valuation Final valuation

Example: NMLK DCF model USD mn 2009 2010 2011E 2012E 2013E 2014E 2015E 2016E

Revenue 6140 8351 11664 14044 16312 17846 18475 19071

EBITDA 1444 2348 2362 2807 3446 4323 4406 4471

margin % 24% 28% 20% 20% 21% 24% 24% 23%

EBIT 891 1794 1650 1962 2576 3439 3516 3579

Taxes 178 359 330 392 515 688 703 716

NOPAT 713 1436 1320 1570 2061 2751 2813 2863

+ Depreciation 553 554 712 845 870 884 890 893

- CAPEX -1050 -1272 -2005 -1446 -1341 -1015 -939 -916

Change in working capital 317 -527 449 -228 -361 -657 -121 -116

FCF 533 190 476 742 1229 1964 2642 2724

WACC Calculation Sensitivity analysis

Terminal growth rate 3,5%

Dis

cou

nt

rate

(W

AC

C)

Discount rate (WACC)

Cost of Equity 14,1% 10,9% 11,4% 11,9% 12,4% 12,9% 13,4% 13,9%

After tax cost of debt 5,6% 5,0% 6,2 5,6 5,2 4,8 4,5 4,2 3,9

Debt/(Debt+Equity) 20% 4,5% 5,7 5,3 4,9 4,5 4,2 3,9 3,7

WACC 12,4% 4,0% 5,3 4,9 4,6 4,3 4,0 3,8 3,5

DCF 6962 3,5% 5,0 4,6 4,3 4,1 3,8 3,6 3,4

Terminal value 31799 3,0% 4,7 4,4 4,1 3,9 3,6 3,4 3,3

Discounted terminal value 19947 2,5% 4,5 4,2 3,9 3,7 3,5 3,3 3,1

Total DCF 26909 2,0% 4,2 4,0 3,7 3,5 3,3 3,2 3,0

Net Debt of 31/12/11 2592

Equity value (common shares) 24317

Number of common shares, mn 5993

Target price, $ 4,06

SOURCE: company data; Grandis Capital estimates

SOURCE: company data; Grandis Capital estimates

NMLK: Multiples model

0

2

4

6

8

10

12

14

16

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Target leading EV/EBITDA

7,5

EBITDA 2012 estimate, USD mln

2 807

EV estimate, USD mln 21056

Net Debt, as of 30.09.2011, USD mln 2933

Fair capitalization estimate, USD mln

18123

Fair price estimate, USD/share

3,02

NMLK: Final valuation

Multiples valuation EV/EBITDA 7.5X, USD per share Weight 0.5 3,02

DCF valuation, USD per share Weight 0.5 4,06

Fair value, USD per share 3,54

Upside, % 61%

Purpose of company meetings Types of meetings: conference calls analysts meetings site visits Client meetings

Company meetings, client meetings, site visits

Reports – reasons for writing

Purpose Structure: company description market outlook operational and financial estimates valuation Sales / Analyst side Types of distribution:

pdf hard copy

Sell-side overview

Valentina Bogomolova MAE-2005

Current: Uralsib Capital

Past: Nomura, Lehman Brothers, Alfabank, HansaBank

Marketing / IPO research

Sell-side overview

Mikhail Ganelin MiF-2009

Troika Dialog

Pros and Cons of being an analyst

Sell-side overview

Vladislav Nigmatullin

MAE-2004

Aton, MDM Bank, J.P.Morgan

Sell-side overview

Sergey Arinin

J.P.Morgan

Buy-side overview

Valentin Preobrazhensky

MiF-2009

Current: Avega Capital

Past: Proactive Capital, Marcuard Spectrum, Cambridge Energy Research Associates, RAO “UES of Russia”, Sberbank of Russia, Vneshekonombank

Equity research and portfolio management

Buy-side overview

Alexei Debelov

MiF-2009

Current: Avega Capital

Past: Proactive Capital, Marcuard Spectrum, Cambridge Energy Research Associates, RAO “UES of Russia”, Sberbank of Russia, Vneshekonombank

Key traps on buy-side

Public Analytics On Buy-side

New Economic School, Moscow

January 2012

Evgeniy Grigoriev ,

Portfolio Management Department

Targeting the audience

Relationship with public and peers

Buy-side strategy on equity asset class

ERP expectations

Role of equity in allocation

News triggers and surprises

Submitting alpha

Content

Slide 17

26.01.2012

Targeting the audience

Risks of releasing data to the public are enormous …

Reputational

Cloning strategies

Distortion of investment sentiment and inducement of bubbles

Sell-side front-running

…

Is it better not to be public?

Slide 18

26.01.2012

Top 15 Asset Management companies

Russia Rest of World

Asset under Management, USD bl. 45 14 500

Have public research … 8 of 15 15 of 15

Research focus … primary on alpha primary on strategy

Relationship with public and peers

Research is not about participating in writing papers, journalistic articles, or entering

in discussions on opinion and ST results. Why?

… financial industry has its weaknesses, but financial disorder could be worse

… markets could be wrong when short-term focus prevails

Slide 19

26.01.2012

Top 15 Asset Management companies – types of equity research (max 15/% of public)

Russia Rest of World (max 15)

Expectations on ERP 8 (100%) 9 (60%)

Role of equity in allocation 1 (13%) 8 (53%)

Triggers and surprises analysis 4 (50%) 10 (67%)

Indicator studies 1 (13%) 2 (13%)

Sector/industry studies 5 (63%) 6 (40%)

Wealth management studies 3 (38%) 7 (47%)

Submitting alpha reports 8 (100%) 3 (20%)

Buy-side strategy on equity asset class

ERP expectations

Defensive / Cyclical depending on business cycle

• Does equity really beat fixed income? Exceptions refutes the rule

• Are LT growth assumptions different for state-owned and innovative companies ?

Role of equity in allocation

Fed model, CAPM etc.

• Does asset allocation really meet investor’s long-term goals?

News triggers and surprises:

Portfolio managers should be prepared to all risks

• Which stories drive the market?

Slide 20

26.01.2012

Submitting performance: Buffett’s letter samples

…

Slide 21

26.01.2012

LT focus: 5-year time horizon is the best to estimate equity results

There is no way to forecast the equity market

Do not disclose industry and companies names in which you invest

Corporate governance and management has a crucial role in LT equity results

Contacts

Evgeniy Grigoriev

Senior Analyst

VTB Capital Investment Management

Tel: +7(495) 2876808

E-mail: Evgeniy.Grigoriev@vtbcapital.com

www.vtbcapital.com

Graduate Development Programmes:

Elevate and Fixed Term Analyst 2012

Elevate

Opportunity to be part of VTB Capital’s pipeline of high potential (HiPo) talent for professional

ranks through a development and rotational programme with key Investment Banking divisions

at the start of your career

Programme Structure:

Four 12 week rotations across Fixed Income, Equities, Research, Global Banking, Structuring

Six week training in London at the Program start: professional skills, VTBC induction, technical and

interpersonal skills

Professional certification

Written development plan and regular progress review

Mentor to be assigned to every programme participant

Programme Start date – September 3rd, 2012

Duration – 16 months

Up to 15 participants between Moscow and London

Successful Elevate graduates to be hired as Senior Analyst or Associate at the end of the programme

Target Audience:

Recent graduate or within 1 year of graduation

Fluent English

Motivated/ambitious, appetite for learning, collegiate, with an international outlook

Legally able to work in Russia and/or UK

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Elevate

Training Programme Framework

Professional Training:

Financial Products

Risk Analysis

Credit risk simulations

Global Markets

Corporate Finance

Asset and Liability Management

Structured Finance

Project Finance

Trade Finance

Leveraged Finance

Asset Management

Portfolio Management

Qualitative Skills:

Communications

Rational Decision Making

Influencing

Presentation Skills

Business Writing

Additional developmental activities:

Simulations

Project work

Case studies

Morning Discussion

Intro and final testing

Feed-back from trainers

Feed-back from VTBC Business Rep-s

Peer review

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Fixed Term Analyst Programme (FTA)

Opportunity for undergraduate students to try themselves in their first Investment Banking

job

Program Structure:

Assignment within one business area

Two days training provided at beginning of the Programme: VTBC Induction, Intro to Investment

Banking, Interpersonal Skills

Start date – July 2nd , 2012

Duration – 2 months. Successful FTA’s contracts could be extended for up to 12 months maximum.

Up to 45 FTA’s throughout the year split per business globally (front office and support departments)

Successful FTA graduates are candidates for Elevate or full time Analyst position

Target Audience:

Students immediately before or in the final year of study

Fluent English

Motivated/ambitious, appetite for learning, collegiate, international outlook

Legally eligible to work in Russia and/or UK

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Application and Selection

Elevate 2012 (Moscow):

• Online Application – February 1st to April 14th

• Assessment center - April - May 2012

• Job offers issued in May - June 2012, start date September 3rd, 2012

Elevate 2012 (London):

• Online Application – November 14th to March 1st

• Assessment center – March – April 2012

• Job offers issued in April 2012, start date September 3rd, 2012

FTA, Summer 2012 (Moscow):

• Online Application – February 1st to April 14th

• Assessment centre - April – May - June 2012

• Job offers issued in May - June 2012, start date July 2nd, 2012

FTA, Summer 2012 (London):

• Online application - November 14th to March 1st

• Assessment Centre - March - April 2012

• Job offer issued in April 2012, start date July 2nd, 2012

Selection process will consist of:

Verbal and Numerical Testing

Group exercise

Panel interview with Business and HR

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Contacts

General information and Online application

http://www.vtbcapital.com

Information on VTB Capital Graduate Development Programme

Irina Shakhmametova

Graduate

Tel: +7 (495) 967 1503

E-mail: ishahmametova@kmsg.ru

http://www.e-Graduate.ru

Q&A

Sergey Arinin

J.P. Morgan

Madina Baikadamova MAE-2011, Renaissance Capital

Valentina Bogomolova MAE-2005, Uralsib Capital

Alexei Debelov MAE-2004, Third Rome

Mikhail Ganelin MiF-2009, Troika Dialog

Evgeniy Grigoriev MAE-2005, VTB Capital IM

Denis Inchenkov MAE-2011, Da Vinci

Stanislav Kondratiev MAE-2011, Uralsib Capital

Andrew Kucherov MAE-2008, Grandis Capital

Irina Nazarova MAE-2011, J.P. Morgan

Vladislav Nigmatullin MAE-2004

Anton Onishchuck MAE-2010, Da Vinci

Ilya Piterskiy MAE-2010, Deutsche Bank

Ilya Potapkin MAE-2011, Wermuth AM

Valentin Preobrazhensky MiF-2009, Avega Capital

Alexander Semeyko MAE-2011, Troika Dialog AM