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Financial Performance of Woolworths group limited

Assignment Description

Students are required to study, undertake an investigation, analyse and conduct analytic work to the given instructions in the areas of business finance covered in learning materials from week 1 to week 10 inclusive. The assignment should identify the main issues, including underlying theories, and explain financial performance measures used in your task. You are strongly advised to reference professional websites, journal articles and text books in this assignment. 

Key tasks to be completed

1. Names of each member of the group and a “business name” under which you will be providing your financial advisory services.

2. The name(s) of two listed companies that you will investigate/analyse for the purposes of possible recommendation to your client from this web site: www.asx.com.au]. 

You are required to

• Get approval from your lecturer on which two companies you are going to investigate.

• Provide a historical description of the companies.

• Identify the type of company.

• Provide a brief description of the companies’ operations and, 

• Provide a copy of the last TWO recent (2017 and 2016) Income Statements and Balance Sheets (which can be downloaded from their web sites).              

3. Calculation of Performance Ratios           

4. Identify any significant factor that may have influenced the share price of your company.

5. Your companies’ beta values and expected Rates of Return using the Capital Asset Pricing Model.

6. Are the current share prices of your companies undervalued or overvalued? 

7. Using the gearing ratios for your company over the past two (2017 and 2016) years, emphasize any improvement towards the maintenance of a preferred optimal capital structure

8.  Final Submission of Complete Assignment

You are an investment adviser, working to build a foundation of wealth for your clients. One of your wealthiest clients already has a diversified portfolio, which includes managed funds, property, cash/fixed interest and a few direct share investments. They wish to expand their portfolio and are considering one of two companies’ shares to add to their portfolio.  (They have an extra $1 million that they wish to invest into company shares.)  The companies, which you will compare and examine are those selected in your group.

Written Report and analysis of the firms performance (including referencing)

• and By the end of week 10 you should provide: 

➢ A hard (and soft) copy of your report to your lecturer

➢ A hard (or soft) copy to the other group members.

• You have one week to study the other group’s report (company) in order to debate with them during the following week’s (week 11) discussion.

You are required to do the following:

1.  Prepare a brief description of the companies, outlining the core activities, the markets they operate within and any factors in the companies’ history which you consider help present a “picture” of your company. The choice of your company should be approved by your lecturer.        

2.  Specify ownership-governance structure of the company:

• Name the main substantial shareholders:

➢ With higher than 20.00% of shareholdings. Based on this argument you should classify a firm as a family or non-family company, and

➢ With higher than 5.00% of shareholdings.

Name the main people involved in the firm governance:

➢ A Chairman

➢ Board members

➢ CEO.

o Whether any of these people has the same surname as any of substantial shareholders (>20% share capital). If yes- you could use this as an argument for the presence of an owner or family member(s) in the firm’s governance. 

o Whether any of shareholders with more than 5% share capital is involved in firm governance.

3. Calculate the following key ratios for BOTH of your selected companies for the past 4 years.  Annual reports are accessible via company websites (show all working out):

i) Return on Assets  (EBIT)        =       (NPAT / Total Assets)

Return on Owners Equity = (Net Profit After Tax / Owners Equity)

Gearing Ratio=         Total Liabilities / Total Assets       

EBITxNPATxTA=NPAT

 TA EBITOE  OE

Be sure that you have “proven” the above equation.             

20 marks

ii) Explain what phenomenon is being “captured” by the variable TA/OE, and how it is impacting on the relationship between Return on Assets and Return on Owners Equity. 

Be sure to explain why the ROE (EBIT) is significantly greater than or less than the ROA (EBIT).

4. Research via the internet or financial/business publications 

i) From research via the internet (using credible sources) or financial/business publications, note any significant announcements which may have influenced the share price of your company. These factors could include merger activities, divestitures, changes in management’s earnings forecasts, changes in analysts’ forecasts, unusual write-offs or abnormal items, macroeconomic factors, industry wide factors, significant management changes, changes in the focus of the company, impact of competitors or law suits etc.  (Restrict the number of announcements to 5).  

5.  Go on-line to http://www.reuters.com/finance/stocks/ and type in the code for your company into the Search Stocks field and click on the magnifying glass button.  

i) What is their calculated beta for your company?  

ii) If the risk free rate is 4% and the market Risk Premium is 6%, use the Capital Asset Pricing Model to calculate the required rate of return for the companies’ shares. 

iii) Is the company you and your partner have chosen a “conservative” investment?  Explain your answer.

6. Are the share prices of your companies overvalues or undervalues?

 i) Find the dividends of your companies in the last two years and calculate the average growth rate.

3 marks

ii) Using the constant dividend growth model and the expected rate of return calculated in task 5 calculate the expected share price.       4 marks

iii) Compare the calculated expected share prices with the current share prices. Are the current share prices overvalues or undervalued? Critically justify your answers. 

7. Consider the gearing ratios for your company over the past two years: 

 i) Does it appear to be working towards the maintenance of a preferred optimal capital structure?  (i.e., does it appear to be “stable”?)     Explain your answer.

4 marks

ii) What have they done to adjust / amend their gearing ratio?  Increase or repay borrowings?  Issue or buy back shares?  Has the Director’s Report given any information as to why they have made any adjustments?

8. Based on your analysis above, write a business report to your client, providing an explanation as why you would like to include this company in their investment portfolio. Please refer to the ratio results calculated earlier and any other trends or factors that you believe to be important.

9. .  Formal structure and referencing

Answer

Q.1.

Ans- Woolworths group limited was established in December 1924 in Australia. It is a long- running retail chain spread throughout New Zealand and Australia. It has a customer base of 28 million people worldwide. The company’s core activities are- 

  1. Fresh food and drinks
  2. Petrol
  3. Financial services
  4. Wine and liquor
  5. Hotels and hospitality

The company operates in various markets including FMCG, hospitality, financial services, etc.

AGL Energy Limited was established in December 1837 in Australia. It is an ASX-listed investor in renewable energy which has Australia's largest electricity generation portfolioIt has a customer base of 3.6 million people worldwide. The company’s core activities are- 

  1. Commercial solar solutions
  2. Moving premises
  3. Electricity and gas
  4. Sustainanble and affordable energy generation
  5. Power Factor Correction

The company operates in various markets including solar and renewable energy, gas and electricity, movers of premises, etc.

Q.2. 

Ans- Woolworths Limited

ChairmanGordon McKellar Cairns

CEO: Bradford Banducci

Board members

Jillian Rosemary Broadbent

Michael James Ullmer

Scott Redvers Perkins

Holly Suzanna Kramer

Siobhan Louise McKenna

Kathryn A. Tesija


Woolworths Limited has an existing base of 445,000 shareholdersNone of the shareholders had higher than 20% or 5% of shareholdings. This shows that the company is a non-family company.

Some major shareholders with their respective shareholdings are as follows-


BlackRock Fund Advisors                                                                                                           2.75%

The Vanguard Group, Inc.                                                                                                           2.64%

Perpetual Investment Management Ltd.                                                                                   1.49%

Legg Mason Asset Management (Australia) Ltd.                                                            0.85%

BlackRock Investment Management (Australia) Ltd.                                                           0.78%

Vanguard Investments Australia Ltd.                                                            0.73%

BlackRock Advisors (UK) Ltd.                                                                                            0.62%

APG Asset Management NV                                                                                  0.54%

Australian Foundation Investment Co. Ltd. (Invt Mgmt)                                                         0.44%

Norges Bank Investment Management                                                                            0.36%


As per the information available on the compny’s website, none of the substantial shareholders are a part of firm’s governance team.


AGL Energy Group  Limited

ChairmanBrett Alan Redman

CEO: Bradford Banducci

Board members

Leslie Victor Hosking

John Victor Stanhope

Belinda Jane Hutchinson

Jacqueline Cherie Hey

Peter Robert Botten


None of the AGL Limited’s shareholders had higher than 20.00% of shareholdings. This shows that the company is a non-family company.


The shareholders with more than 5% of shareholdings are as follows-


Westpac Custodian Nominees Limited                                                                         7.61%

National Nominees Limited                                                                         6.86%

J P Morgan Nominees Australia Limited                                                                                  5.96%


As per the information available on the compny’s website, none of the substantial shareholders are a part of firm’s governance team.

Q.2. 

Ans- Woolworths Limited

Some significant announcements which might have influenced the share price of your company are listed down under-

  1. Woolworths group has been listed amongst the top Australian company in 2018
  2. Woolworths was awarded with the “Carrier of the year awards 2018”
  3. Woolworths Energy Group Limited enters into a brand new convenience and loyalty alliance along with a 15 yearwholesale fuel arrangement with Caltex
  4. Sudden death of former CEO- Michael Luscombe on April 27th, 2018. Michael’s worked with Woolworths for a long period of 33 years out of which he held the position as the CEO of the company for over years from 2006 to 2011.
  5. Woolworths to donate all profits from fresh food sales this Saturday to support drought affected Aussie farmers


AGL Energy Group Limited

Some significant announcements which might have influenced the share price of your company are listed down under-

  1. AGL’s financials for FY18 reflects the benefits of AGL’s multibillion-dollar investments in their electricity generation portfolio over recent years has resulted in strong returns for shareholders during the recent period of higher wholesale electricity prices. 
  2. AGL Energy Limited announced on 24th August that the company’s Managing Director and Chief Executive Officer (CEO), Andy Vesey, will leave the company after almost four years in the role.
  3. AGL today expanded its low, fixed rate energy plan AGL Essentials to Queensland, New South Wales and South Australia
  4. AGL Energy Limited has agreed to sell a portfolio of small generation and compressed natural gas refuelling assets, known to AGL as the National Assets, to Sustainable Energy Infrastructure, a consortium led by Whitehelm Capital
  5. AGL has announced lower electricity prices across New South Wales, Queensland and South Australia
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