Inordinate Ineptitude

One of my pet peeves is the parasitic role played by the stockbroking profession in the financial services sector, and how little value that profession adds.  Yet people seem to hang onto the recommendations and advice from stockbroking analysts as though they are some sort of superior intellectual beings.   When they are patently not.

As a case in point, someone sent me a research report on MND, following the company's AGM, authored by an analyst from a leading investment bank, which shall remain unnamed.

The analyst has increased his/her FY2018 and FY2019 earnings forecasts for MND by 19% and 6% respectively.

One can forgive those sorts of adjustment, even if they are quite significant, because forecasting future profitability is something almost no one can get right on a sustainable basis.  So no real crime committed here.

But where it does become a bit of an insult to the intelligence of the consumers of this "research" tripe, is the fact that a 19% near-term increase in profitability and a 6% increase in medium-term profits, somehow leads to a valuation increase of ....wait for it.... (drum roll)...36%(!!)  (from $12.80 to $17.35).

"But how on earth does that work?" one might well ask.  

It happens due to ... Abracadabra! Zim Zala Bim! ....er... "Sector re-rate".

In other words, it's a case of:

"If the share price gets too far away from our valuation, that becomes a bit embarrassing for us, professionally, so what we then do is we simply just suck a new valuation number out of our collective derrieres. And hey, presto! No more professional embarrassment. Easy peazy."

Without the need to be paid $250k pa (plus bonuses), my 12-year old niece would be able to do exactly the same thing.