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Investment Essay

2104 words - 8 pages

BAO3403 INVESTMENTS AND PORTFOLIO MANAGEMENTGroup members:Liu Tianyi ID: 3750862Zhao Xin ID: 3749501Zhao Xin ID: 3750850SummaryIn this report, three companies which are listed on the Australian Stock Exchange are chosen: Woolworths Ltd., Lion Nathan Ltd. And Super Cheap Auto Group Ltd.. This report will be divided into three sections. In the first section, the company's historical share price will be downloaded on the website, and the price trend, required return and dividend growth will be calculated and represented in a chart. In the second section, the story of company will be introduced. It includes the information which can influent the investors decision, such as, director's statements, media releases and corporate governance etc.. In the third section, the conclusion will be made through the comparison of the three companies, and an allocation will be justified if we currently have $10,000 to invest.Suggested Report1.0 THE NUMBERS1. 1 Trend in Monthly Share PricesThe date in Appendix 1 (Table 1) describes the adj. close and returns of the three companies from 1 April 2004 and 1 April 2009 in monthly and the Squared Deviation of the date is pointed out.In Figure 1,2&3 of the three line charts show monthly share prices and returns in the same period.Figure 1Figure 2Figure 3This is the form of price and return of WOW. The price of WOW registers as a growing trend although it has some fluctuation. The general trend of price is growing steadily. Returns fluctuate prodigious.The price of SUL is very stable as nearly there is no fluctuation. However, returns of SUL fluctuated heavily. From the data, we can see that it has, the highest monthly return was 24.86% and the lowest was -26.04%.The price of LNN is quite stable, the standard deviation of LNN is 0.048, and the beta is 0.063. When the price became the top in current five years, the return is also the highest. After that, the return was down to the lowest point

Average
Monthly price

Average Monthly Returns

Standard Deviation

Beta

WOW

21.8

0.01402

0.0550

0.7

LNN

8.217

0.00521

0.0481

0.63

SUL

3.04

0.00432

0.1064

1.03

In this chart, the average monthly price of WOW is the highest, which means the price is higher than the two other companies are.Future GrowthRequire return=As risk- free rate (RF) is 2-year Australian Treasury rate in average, which is 2.84%And he risk-premium is 7.3%, so the E (Rm) is 2.84%+7.3%=10.14%. is the Beta that is 0.7, 0.63, and 1.03 of three companies.WOW: Require return= 2.84% +0.7(10.14%-2.84%) = 7.95%LNN: Require return= 2.84% +0.63(10.14%-2.84%) = 7.439%SUL: Require return= 2.84% +1.03(10.14%-2.84%) = 10.359%As the Sustainable growth= (1- Payout ratio) x ROEThe payout ratio of each share is 69%, 80% and 54%, then the Return on Equity (ROE) is 27.2%, 31.7%and 19%. So,WOW: sustainable growth= (1- 69%) x 27.2%= 8.432%LNN: sustainable growth= (1- 80%) x 31.7%= 6.34%SUL: sustainable growth= (1- 54%) x 19%= 8.74%

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