Security Analysis and Business Valuation on Wall Street,: A ... - lib

90 PERFORMING THE ANALYSIS AND WRITING THE RESEARCH REPORTGeographic Market Estimated Dem<strong>and</strong> (million tons)Central Mexico 14.9Northern Gulf 7.8South Mexico 7.0Central Pacific 4.2North Pacific 2.9Export 4.0Geographic market dem<strong>and</strong> 40.8Submarket-based dem<strong>and</strong> 42.1GNP-based dem<strong>and</strong> 41.5EXHIBIT 6.13 Mexican Cement Market: Building Aggregate Dem<strong>and</strong> by Submarketfor 2007, Geographic BasisSources: National Chamber for the Cement Industry of Mexico, Mexican Institute forCement <strong>and</strong> Concrete, National Chamber for the Construction Industry of Mexico.A careful analyst studies dem<strong>and</strong> on the basis of several submarket classifications.In following Dr. Aaker’s advice, I looked at Mexican cement forecasts froma geographic st<strong>and</strong>point. I divided Mexico into five geographic markets <strong>and</strong> thenlooked at individual market needs. (See Exhibit 6.13.) In this instance, the macro,usage, <strong>and</strong> geographic methods delivered aggregate forecasts that were highly correlated.Utilizing multiple approaches is a good double check for any sales forecast.Established IndustriesFor established industries, an analyst should contact long-time customers to figurewhat drives dem<strong>and</strong> in each submarket. What guides the customer’s buying decisions?How does this differ by submarket? What changes are occurring in thecustomer’s motivation? What implication does this have on industry revenues? Discussionswith customers <strong>and</strong> a study of buying habits provide an indication ofwhether prior trends continue.For example, personal computers captured 62 percent of the U.S. householdmarket in 2007. Unit growth is about 5 percent annually. MP3s or iPods representa newer appliance. They were in 14 percent of U.S. homes but mostly in the higherincome levels. The low MP3 penetration (relative to PCs) promotes a high growthrate until saturation occurs in all income segments. (See Exhibit 6.14.)EXHIBIT 6.14Comparable Household Penetration: Two Computer DevicesDevice 1987 1992 1997 2002 2007iPod/MP3 — — — 2% 14%Personal computer 12% 24% 34% 60% 62%