– This is not analysis, it is marketing – E24

– This is not an investment area with huge income opportunities. It will be a side branch of the industry, says Sindre Støer, executive director of the Norwegian Association of Investment Firms (VPFF).

E24 wrote on Saturday about the growing investment of brokerage ABG Sundal Collier in the analysis of paid stocks in Norway.

Paid analysis differs from ordinary stock analysis in that it is paid by the listed company itself.

Unlike regular analytics, they are also shared for free with the outside world, making paid analytics more accessible to a wider audience, including hobby investors and small savers.

SEB is in the process of launching its first paid analysis of a Norwegian company, and players like Pareto and Danske Markets are keeping the door open for an investment in the product in Norway.

But Støer, who runs the industry organization for Norway’s leading investment firms, doubts that payment analytics is a major product in the Norwegian market.

– Do you think a brokerage house will be perceived to have less independent analysis in general if it focuses on paid analysis?

– It is obvious that you are not independent if you do paid analysis. This is not “analytics” as we define it in our industry, it is marketing, says Støer.

– A good solution for several companies.

In Saturday’s E24 article, ABG’s head of analytics John Olaisen stated that he believes their paid analysis is of better quality than the broker’s regular analyzes.

– Analysts feel an extra responsibility to do a good job when the company has paid for the analysis. You also get very close to companies, which is an advantage, Olaisen said.

He also noted that it was an excellent product for companies struggling to attract investors’ attention and that the brokerage had demonstrated a significant positive liquidity effect on the stock in the period after the paid analysis was released.

Støer emphasizes that he does not see any problems with the analysis of payment as a product and that it can be a very good solution for several companies.

– But it must also be emphasized that this is not an analysis, only a review of the company. So it is also clear from these products that this is not an investment recommendation, says Støer.

– A nice addition

“I choose to see contract analysis as a good addition to the market, especially in cases where the alternative is not to do analysis,” Audhild Asheim Aabo, Nordea’s portfolio manager, tells E24.

When asked if you have more, less, or the same confidence in an allocation analysis compared to an ordinary stock analysis, you answer:

– I think the question here is related to whether analysts have an incentive to be “kinder” in their analysis in cases where the companies themselves pay. In that context, it may also be important to note that even when it comes to ordinary analysis, there are incentives for analysts to lean on the positive side, says Aabø.

He points out that institutional investors do their own analysis in addition to looking at external ones, and therefore it doesn’t matter so much whether an analysis is bought and paid for or not.

– We are more concerned with the objective facts contained in reports written by analysts, and less concerned with the conclusions themselves. I like to use analysis as a good calibration tool when making my own estimates. The analysts behind the reports are invaluable counterparts for companies to discuss, perhaps especially in those cases where there is disagreement on the conclusions, says Aabø.

In addition, he notes that the clear labeling of paid analysis material means that the reader himself may be aware that the conclusions may be colored by the incentive structure.

Delphi manager Andreas B. Lorentzen has used paid analytics to get a quick overview of a company.

– What do they do, how have the historical accounting figures been, in what multiples they are traded and information about the property, the capital structure, etc., says Lorentzen.

You claim that you are less confident in paid analysis as it generally appears to be less complete. But he denies that it weakens his confidence in the brokerage house that offers the product.

– No, probably not, although I prefer it to be an ordinary stock analysis, says Lorentzen.

– Nordic brokerages are privileged

Paid analysis was expected to be a major new source of revenue for brokerages following the introduction of the Markets in Financial Instruments Directive (Mifid II) in 2018.

The new rules meant, among other things, that brokerages had to start charging directly for their financial analysis and could no longer turn this into a brokerage firm.

At the same time, institutional managers had to start collecting the bill for the purchase of analysis themselves, rather than charging the fund’s clients for this cost.

Thus, a sharp drop in demand for equity analysis was also forecast, as a result of managers reducing the number of brokerages from which they purchased services.

– This transition has gone better than feared. Nordic institutional managers have largely maintained their contacts with brokers, although they have naturally seen some consolidation at the major brokerages, Støer says.

It stands out that the Nordic region is in a privileged position with a high level of activity in the capital market compared to the rest of Europe, where the number of active equity analysts has fallen.

– There seems to be a recognition at EU level that the introduction of mandatory test pay is not the smartest decision they have made. You can see that there is a total absence of analytics coverage in small and medium-sized companies with a market value of less than a billion euros in Europe, says the VPFF manager.

According to Aabø, Nordea has had “somewhat less” access to analytics now than before Mifid II.

– Mainly from large foreign brokerages. Of the Norwegians, we have roughly the same coverage as before. We have sufficient coverage and we perceive that we receive analysis from the brokerages we want, says Aabø.