Methodology
Methodology in Practice
Not a prediction. A demonstration of process — how cross-domain synthesis and disciplined method surface questions that single-source analysis misses.
The Situation
A market leader in a defensive sector. Fifteen years of steady earnings growth. Premium valuation at 22× forward — 20% above sector. A discount competitor gaining share. Management's response: "investing through the cycle."
A composite drawn from recurring patterns across Australian equities, not a specific company.
Priced Narrative
Margins recover as competitive intensity normalises
Implied Requirement
Competitor share gains decelerate; margins restore within two years
The question: what assumptions does this price rest on, and can we test them?
Cross-Domain Synthesis
Eight evidence domains. Different motivations, different reliability. Where independent sources agree, confidence is warranted. Where they disagree, the disagreement is informative.
Corporate Communications
Guides to margin recovery by FY27. Confident tone. Digital positioned as tailwind.
Guidance missed 3 of 4 years.
Regulatory Filings
ACCC interim report notes "pricing practices of concern." Flags potential structural remedies.
Outcome range wider than consensus assumes.
Broker Research
12 of 14 analysts rate Buy or Hold. Consensus expects margin recovery FY27.
One outlier sees structural shift. Worth examining.
Competitor Disclosures
Discount competitor's 4E shows share gains accelerating. Targets premium segment as "structurally vulnerable."
Market assumes normalisation; competitors plan intensification.
Economic Data
Category growth decelerating. Consumer sentiment below average. Household budgets under pressure.
Macro doesn't support "return to normal."
Alternative Data
SEEK: hiring in ops, cuts in corporate. Web traffic up but conversion metrics suggest channel remains dilutive.
Actions suggest cost management, not growth investment.
Academic Research
"Price investment to defend share" rarely reverses to prior margins. Post-inflationary sensitivity persists 3–5 years.
Base rate for recovery lower than narrative implies.
Media Coverage
Increasingly focused on "cost of living" angle. ACCC inquiry gaining political salience ahead of election.
Regulatory risk underappreciated by consensus.
Evidence Alignment
How each domain relates to the priced narrative: "Margins recover by FY27"
Six of eight domains contradict or fail to support the priced narrative. The two that support it both derive from management guidance.
Competing Hypotheses
We generate distinct futures and test each against evidence. Not "most likely" — all plausible.
H1: Stability
Priced scenarioCompetitive intensity normalises. Cost programs deliver. Premium valuation justified by defensive characteristics and eventual margin recovery.
Requires: Competitor share gains <0.5% p.a. No material regulatory intervention.
H2: Acceleration
Least evidenceDigital transformation delivers margin expansion beyond historical levels. Market underestimates business quality.
Requires: Digital channel profitability. Cost savings exceeding guidance. Gross margin expansion.
H3: Structural Compression
Evidence accumulatingCompetitive pressure is permanent, not cyclical. Price investment becomes the new baseline. Margins settle 50–100bps below historical average. Premium valuation unsustainable.
Requires: Competitor share gains at current pace. Consumer price sensitivity elevated. Cost inflation persistent.
H4: Regulatory Intervention
Tail riskACCC inquiry leads to structural remedies. Industry profitability impaired across all participants. Absolute returns decline regardless of relative positioning.
Requires: Structural remedies recommended. Government acts. Material compliance costs or pricing restrictions.
What Settles It
Discriminating Evidence
Evidence that would look different depending on which hypothesis is true.
Competitor share gains accelerating
Margin guidance missed 3 of 4 years
ACCC interim report flags concerns
Academic: price investment rarely reverses
Evidence that doesn't discriminate
Evidence Weight by Hypothesis
H3 has the most independent support. H1 is priced but not evidenced.
What We're Watching
We don't conclude which hypothesis is correct. We specify what would change our assessment — and when we'll know.
Decision Points
Three dates will discriminate between hypotheses.
H1 results
Tests:
Margin ≥5.3% → H1 ↑
Margin <5.0% → H3 ↑
Competitor data
Tests:
Share deceleration → H1 ↑
Share acceleration → H3 ↑
ACCC final report
Tests:
Behavioural only → H1 ↑
Structural remedies → H4 ↑
H1 results
Tests:
Margin ≥5.3% → H1 ↑
Margin <5.0% → H3 ↑
Competitor data
Tests:
Share deceleration → H1 ↑
Share acceleration → H3 ↑
ACCC final report
Tests:
Behavioural only → H1 ↑
Structural remedies → H4 ↑
H1 strengthens if
- FY26 margin ≥5.3%
- Competitor share deceleration <0.5%
- ACCC: behavioural remedies only
H3 strengthens if
- FY26 margin <5.0%
- Competitor share gains continue
- Further margin guidance revision
H4 crystallises if
- ACCC: structural remedies
- Government signals intent to act
- Industry compliance cost guidance
This is where analysis ends: not with conviction, but with clarity about what we're testing and what would change our view.
From Manual to Continuous
This analysis could be done manually. We have done it manually, for decades. What changes with Continuum is scale and consistency — maintained continuously across the full portfolio, without degradation.
How comprehensive synthesis and engineered discipline become operational.