Research
Methodology.

Sandstone Insights’ recommendations of Buy, Hold or Sell, are based on detailed qualitative and quantitative analysis of a company’s income and growth risk profile to derive an estimate of the total return an investor can expect over a 12-month period. We define total return as the share price return plus gross dividend yield and use this analysis to derive our recommendations below:

BUY

Expect the total return to be more than 10% in the 12-month period from the date of recommendation

HOLD

Expect the total return to be between +10% and -5% in the 12-month period from the date of recommendation

SELL

Expect the total return to be more than -5% in the 12-month period from the date of recommendation

Sandstone Insights’ quantitative model utilises historical and forecast consensus data points to determine and classify our recommendation for each security, including:

Forecast changes in earnings or sales over the next 12 months.
The company’s dividend or distribution yield forecast, grossed up for any franking credit benefit a shareholder will receive.
The change in the valuation multiple paid for the stock. The choice of multiple will depend on the nature of the business. We may use PE, EV/EBITDA, EV/Sales, dividend yield or price to book depending on the most suitable measure for the industry and life-stage of the company. We review the multiple and compare it to its three-year average and adjust the suitable multiple depending on our judgement about the quality of the business. Quality factors will include reputation of management, consistency of delivery, visibility of earnings drivers and the dispersion of analyst forecasts.

Sandstone Insights’ recommendations are not static and will be updated as consensus data and analyst forecasts are changed. Accordingly, the income and growth risk profiles for each stock may change over time as the data changes.

KEY PROPERTIES DEFINITION

Sandstone Insights’ model will derive a Key Properties profile based on important factors in assessing a company’s future performance. We consider the level and sustainability of a company’s income, the level of risk and the moat position, or the defensive characteristics of the company. Each of these factors is rated on a scale and explained as follows:

RATING

BUY

Expect the total return to be more than 10% in the 12-month period from the date of recommendation

HOLD

Expect the total return to be between +10% and -5% in the 12-month period from the date of recommendation

SELL

Expect the total return to be more than -5% in the 12-month period from the date of recommendation

INCOME

High sustainable income. A dividend yield above the market average and expected to be sustainable over several years.
High income. Dividend yield above market average
Dividend yield in line with market average
Below market average dividend yield
No dividend, no prospect of imminent shareholder payments

GROWTH

High growth business with above average earnings growth and momentum.
Growth business with positive earnings growth
Earnings growth in line with market expectations
Below market earnings growth
Declining earnings growth

RISK

Low risk business with low operational, regulatory and financial risk
Low risk business with below average operational, regulatory or financial risk
Average degree of business risk
Above average operational, regulatory or financial risk
Multiple risk exposures that could be detrimental to the business

Sandstone Insights’ recommendations are of a general nature only and individuals must consider their own specific investment goals, risk tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors.

ResearchMethodology.

KEY PROPERTIES DEFINITION

RATING

Research
Methodology.