Tuesday, 9 August 2016

Felda's recommendations: Bloomberg needs to check its data (2)

One of this blogs regular contributors send me some very helpful comments including a screenshot of the recommendations by the analyst (Ivy Ng from CIMB) as displayed on the Bloomberg terminal.

This does bring a lot of perspective to the story of yesterday.

The share price of Felda plus all the buy/hold/sell recommendations:

First of all a lot of "hold" recommendations starting in August 2012 (the report I linked to yesterday was probably the first research report) until August 2014. At that moment the stock has fallen to about RM 4, so the recommendations so far were not exactly great.

But then, the analyst changed her mind to a "sell", and that looks a good call since the share did drop to about RM 3.

Then things turn rather strange, while the share continues to slide all the way down to the RM 1.50 level, recommendations change from "sell" to "hold" to "sell" to "hold" back to "sell" again. There might be some reason for this (possibly an internal rule in CIMB), but I am not aware of that.

Then somewhere in April 2016 at a price of about RM 1.50 the analyst changes from "sell" to "buy" and at this moment (with hindsight and with the price currently at RM 1.93) that looks like a rather good call.

Rather remarkable, if I might add, seven different recommendations for a four year period.

Regarding the initial "hold" call and the rather high target price of RM 5.05 about which I wrote yesterday: CIMB was one of the brokers supporting the IPO, according to this article:

CIMB Investment Bank (CIMB.KL), Maybank Investment Bank (MBBM.KL) and Morgan Stanley (MS.N) acted as joint global coordinators for Felda Global's flotation, with JPMorgan (JPM.N) and Deutsche Bank (DBKGn.DE) working as joint bookrunners.

Given this, it would have been "near impossible" for an analyst of CIMB to issue a "sell" recommendation.

It is of course a clear conflict of interest situation, and some of that might be found in the disclaimer attached to the report, but it is all rather vaguely described.

I would have preferred that it would have been clearly explained on the first page of the research report.

Regarding "Ng, who is top ranked and has returned 63% for her call on Felda, has the only buy call out of 14 analyst recommendations, according to Bloomberg data": Bloomberg tracks the one year return of a stock assuming an investor followed the recommendations over that period.

I think that is a rather limited tracking of performance, especially if an analyst has followed a company for much longer and had issued many recommendations in the past.

Anyhow, things do look markedly better than I initially thought, I was not aware that the analyst had indeed turned negative somewhere in 2014.

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