Real Estate Investar Group Limited mainly operations in the online market, were relevant services and direct investment property opportunities are presented to Australiana and New Zealand investors. The company adequately operates through subscription transaction services and property segments. The company adequately provides tools, resources, and new services to investors. In addition, the company adequately identifies, analyses, acquires, track and account for investment property (Rei-group.com.au 2018). Moreover, the company provides end-to-end solution to consumers regarding their investment in property. The company is mainly operating in Australian market and has relevant competitors from different established companies. Lastly, the company conducts operations such as property sales and mortgage broking in Australia.
|
Main substantial shareholders |
Number of Share held |
% of issued share |
|
INVIA CUSTODIAN PTY LTD |
10,627,914 |
10.94% |
|
GOLDEN MAIL PTY LTD |
10,576,125 |
10.88% |
|
HB SUPER HOLDINGS PTY LTD |
8,255,983 |
8.50% |
|
POHUTUKAWA PTY LTD |
8,034,281 |
8.27% |
|
LV2 PTY LTD |
7,924,705 |
8.16% |
|
Position |
Name of the Persons |
|
Non-Executive Chairperson |
Simon Baker |
|
CEO and Managing Director |
Clint Greaves |
|
Independent non-executive Director |
Joe Hanna |
|
Independent non-executive Director |
Ian Penman |
|
Particulars |
2017 |
2016 |
2015 |
|
Net Profit After Tax |
(2,222,750) |
(1,365,347) |
(2,094,189) |
|
Total Assets |
4,728,346 |
7,052,950 |
2,661,357 |
|
Ordinary Equity |
11,285,121 |
11,285,121 |
4,165,796 |
|
Total Liabilities |
2,974,531 |
3,304,531 |
4,687,467 |
|
Return on Assets |
-47.01% |
-19.36% |
-78.69% |
|
Return on Equity |
-19.70% |
-12.10% |
-50.27% |
|
Debt Ratio |
62.91% |
46.85% |
176.13% |
|
Particulars |
2017 |
|
EBIT |
(4,125,977) |
|
TA |
4,728,346 |
|
NPAT |
(2,222,750) |
|
EBIT |
(4,125,977) |
|
TA |
4,728,346 |
|
OE |
11,285,121 |
|
NPAT/OE |
(EBIT/TA) * (NPAT/EBIT) * (TA/OE) |
|
NPAT/OE |
-19.70% |
|
Particulars |
2017 |
2016 |
2015 |
|
TA/OE |
41.90% |
62.50% |
63.89% |
From the evaluation of overall table difference between total assets and equity is detracted. The table indicates that overall accumulation of assets has greatly reduced during 2017, while the accumulation of ordinary assets remained same from 2016 to 2017. This is the main reason behind the drastic fall in return from investment, which is been calculated in above tables. The decline in percentage from 62.50 to 41.90% is an indication that the company has sold its asset during 2017, which drastically reduced its financial viability (Rei-group.com.au 2018).
|
Particulars |
2017 |
2016 |
2015 |
|
Total Assets |
4,728,346 |
7,052,950 |
2,661,357 |
|
Ordinary Equity |
11,285,121 |
11,285,121 |
4,165,796 |
|
EBIT |
(6,948,799) |
(6,558,403) |
(5,091,144) |
|
Return on Assets |
-146.96% |
-92.99% |
-191.30% |
|
Return on Equity |
-61.57% |
-58.12% |
-122.21% |
From the overall evaluation of ROA and ROE indicates a drastic fall in its valuation, which incurred during 2017. This was mainly due to the fall in total assets, which resulted in the decline of ROA from the level of -92.99% to -146.96%. on the other ha nth change in ROE is relatively minimum from -61.57% to -58.12% (Rei-group.com.au 2018). This indicates that due to the continuous fall in EBIT and return on assets the overall return from assets have inclined immensely. The main difference is the changes in assets, which is maintained by the company during 2015 to 2017.
From the overall evaluation of REV shares return and All ordinary index return, no similarities can be identified. As depicted in the above figure, the return of All ordinary index is smooth and has relevantly levels, while the overall return of REV is fluctuating constantly and is behaving in uncorrelated manner. REV has a correlation of -0.25796 with All ordinary index, which indicates that both the securities are not correlated (Asx.com.au 2018).
5. Depicting the overall significance of announcements and its impact on share price of the organisation:
|
Date |
Announcements |
Factors |
|
14-Dec-2017 |
Appendix 3B-release of security from escrow |
Financial performance |
|
23-Nov-2017 |
AGM results |
Financial performance |
|
20-Nov-2017 |
Release of security from escrow |
Financial performance |
|
02-Nov-2017 |
Change in Directors interest notice |
Earnings forecast |
|
31-Oct-2017 |
Appendix 4C- quarterly |
Financial performance |
6i. Identifying and calculating the beta of REV:
From the overall evaluation Beta of the organisation is not detected from any website, while adequate valuations are being conducted for the identification of beta. The beta is then calculated to be at the levels of -0.03.
6ii. Drafting the overall CAPM retune of the REV:
|
Particulars |
Values |
|
Beta |
-0.03 |
|
Risk free rate |
4% |
|
Market risk premium |
6% |
|
CAPM |
3.94% |
6iii. Indicating whether REA is a conservative investment for investors:
The calculation mainly indicates that beta of the company is at the levels of -0.03%, which indicates that investors could use the overall stock to hedge their portfolio. The investment option is mainly considered to be conservative, as no high risk is involved from investment in the stock.
7i. Drafting the WACC of REA:
|
Particulars |
Values |
|
Total Equity |
11,285,121.00 |
|
Total Debt |
350,496.00 |
|
Total Capital |
11,635,617.00 |
|
Cost of debt |
7.88% |
|
Cost of equity |
3.94% |
|
Tax |
30.00% |
|
WACC |
3.99% |
From the overall evaluation of WACC the mangers can detect the minimum requiremnet needed from a relevant project. Moreover, WACC mainly indicates that overall cost of capital of an organisation and investors need to get higher return from their investment. The WACC is also calculated by the investors to detect the overall minimum return, which is needed by the company to obtain during the fiscal year. The managers with the help of WACC are mainly able to understand the minimum requirement, which needs to be provided by any investments or projects obtained by the company. Hence, organisation needs to select projects that have higher return than WACC, as it needs to maintain high return from evaluation. Therefore, the managers of REA mainly need to be obtain projects that have higher return from 3.99%. In this context, Chauhan (2016) stated that WACC is required by investor to understand the overall payments that is needed by the company to pay during the fiscal year.
|
Particulars |
2017 |
2016 |
|
Total Assets |
4,728,346 |
7,052,950 |
|
Total Liabilities |
2,974,531 |
3,304,531 |
|
Debt Ratio |
62.91% |
46.85% |
The debt ratio of the company has mainly inclined over the period of one fiscal year, which indicates the low financial position of the organisation. The relevant debt rate of the company has mainly inclined from 46.85% to 62.91%, which indicates the falling financial condition of the company from 2016 to 2017 (Asx.com.au 2018). In addition, the decline is mainly due to the fall in assets, which was accumulated by the company from 2016 to 2017. Moreover, inclination in the debt ratio could directly increase the chance of insolvency position of REA.
8ii. Depicting what they have done to adjust their gearing ratio:
Not adequate decision was taken by the management in controlling the overall increment in debt ratio. Instead the company declines its overall accumulated assets to danger levels, which increased the debt ratio. The share issues have been conducted by the company, which is been stated by the directors of the organisation.
9. Discussing the dividend policy adopted by the management:
The evaluation of the annual report indicates no dividend policy has been maintained by the organisation during the past fiscal years. The company has not paid any kind of dividend to her shareholders since its inauguration
10. Providing recommendations why the company could be included in his/her portfolio:
The overall evaluation of the financial report and share price of the organisation it is advisable to ignore shares of REA in the portfolio. The performance of the company has mainly deteriorated in the past fiscal years, which could increase risk of the portfolio and reduce its return. Hence, investors need to ignore shares of REA, while drafting the portfolio.
Reference and Bibliography:
Agliardi, E., Agliardi, R. and Spanjers, W., 2016. Corporate financing decisions under ambiguity: Pecking order and liquidity policy implications. Journal of Business Research, 69(12), pp.6012-6020.
Asx.com.au. (2018). [online] Available at: https://www.asx.com.au/asx/share-price-research/company/REV [Accessed 31 Jan. 2018].
Au.finance.yahoo.com. (2018). REV.AX: Summary for REI GROUP FPO – Yahoo Finance. [online] Available at: https://au.finance.yahoo.com/quote/REV.AX?p=REV.AX [Accessed 31 Jan. 2018].
Balakrishnan, K., Watts, R. and Zuo, L., 2016. The effect of accounting conservatism on corporate investment during the global financial crisis. Journal of Business Finance & Accounting, 43(5-6), pp.513-542.
Berlinger, E., Lovas, A. and Juhász, P., 2017. State subsidy and moral hazard in corporate financing. Central European Journal of Operations Research, 25(4), pp.743-770.
Bris, A., Koskinen, Y. and Nilsson, M., 2014. The euro and corporate financing before the crisis. Journal of Financial Economics, 114(3), pp.554-575.
Chauhan, G.S., 2016. Reconciling theory and evidences for corporate financing in India. Journal of Emerging Market Finance, 15(3), pp.295-309.
Drover, W., Busenitz, L., Matusik, S., Townsend, D., Anglin, A. and Dushnitsky, G., 2017. A review and road map of entrepreneurial equity financing research: venture capital, corporate venture capital, angel investment, crowdfunding, and accelerators. Journal of Management, 43(6), pp.1820-1853.
Lara, J.M.G., Osma, B.G. and Penalva, F., 2016. Accounting conservatism and firm investment efficiency. Journal of Accounting and Economics, 61(1), pp.221-238.
Nguyen, T., Nguyen, H.G. and Yin, X., 2015. Corporate Governance and Corporate Financing and Investment during the 2007?2008 Financial Crisis. Financial Management, 44(1), pp.115-146.
Nguyen, T., Nguyen, H.G. and Yin, X., 2015. Corporate Governance and Corporate Financing and Investment during the 2007?2008 Financial Crisis. Financial Management, 44(1), pp.115-146.
Rei-group.com.au. (2018). Real Estate Investar Group Ltd.. [online] Rei-group.com.au. Available at: https://www.rei-group.com.au/ [Accessed 31 Jan. 2018].
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