Discuss about the Consultant’s Report Of WPP AUNZ Limited.
A person always wants to enhance the worth of his or her savings. They always look for various ways through which their invested amount could be enhanced and they could get return and the profit from the market. Mainly, a person looks for the share market and the capital market to enhance the worth of their savings. In this report, as a consultant’s report, WPP AUNZ LIMITED has been taken into the context. This study has been performed over this comapny to evaluate the performance of the comapny and the industry and Australian market as well. According to this report, an analyst and the investor always have various manner to identify and evaluate the performance of the company. For preparing this report, some of the methods have been taken into the context.
WPP AUNZ LTD is a British company which has its operations in various companies including the Australian market. This company is an advertising company. Head office is in London of this company. Currently this comapny has registered its stock into the ASX to trade the shares[1]. Turnover of the comapny is rapidly enhancing (Home, 2017). Currently 205000 people are working with this comapny. The performance of the company depict about positive changes.
Debt valuation study has been performed over the WPP ANZ LTD to analyze the debt position of the company. Firstly it has been identified that this comapny raises the short term funds through bank loan and t bills whereas the long term funds are raised by the comapny through equity and bank loans. The position of long term and short term debt are as follows:
|
WPP AUNZ LIMITED |
|||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Long term debt |
353649000 |
157100000 |
107075000 |
172150000 |
133009000 |
|
Short term debt |
0 |
70000000 |
100000000 |
215000 |
3208000 |
For analyzing the debt position of the company with the industry data, competitive company of the firm, Regional express limited has been taken into the context. Following is the position of the industry:
|
Regional Express Limited |
|||||
|
2017 |
2016 |
2015 |
2014 |
2013 |
|
|
Long term debt |
11591000 |
14805000 |
17740000 |
20416000 |
222864000 |
|
Short term debt |
3214000 |
3071000 |
2676000 |
2448000 |
2235000 |
According to both the tables of long term ans short term debt of the comapny as well as the industry, it has been found that the long term debt position of the comapny is constant but currently, WPP AUNZ LTD is ignoring the short term debts.
According to the evaluation, the short term debt of the comapny is not according to the industry standards and further, the performance of the long term debt is quite similar with the performance of the industry standard. Currently, comapny is using the long term debts only to manage the performance and the position.
The cost of debt of the comapny is as follows:
|
Calculation of cost of debt |
|
|
Outstanding debt |
353649000 |
|
interest rate |
4% |
|
Tax rate |
0.3 |
|
Kd |
0.0280 |
This study of debt valuation depict that the comapny is not required to make the changes into the long term debt but comapny could raise the funds of short term debt.
In addition, study has been performed over the shares to analyze the performance and position of the WPP AUNZ LTD. Firstly, the total cost of equity of the comapny is as follows;
|
Dividend Discount Model |
|
|
Dividend expected |
0.014211368 |
|
Growth rate |
11% |
|
Price per share |
1.69 |
|
cost of equity |
11.4918% |
This depict that the total cost of equity of the comapny is 11.49%. further, various figures of the comapny from annual report, 2017 has been evaluated to analyze the performance of the comapny.
|
2016-12 |
2015-12 |
2014-12 |
2013-12 |
2012-12 |
|
|
Revenue |
902644000 |
474066000 |
451902000 |
393455000 |
345665000 |
|
Cost of revenue |
137412000 |
78310000 |
47642000 |
||
|
Earnings |
0.07 |
-0.13 |
0.11 |
0.12 |
0.12 |
The growth rate of the comapny is 5% and the dividends are announced by the comapny after every 6 months. Currently, the dividend is $ 0.02 which is expected by the shareholders of the comapny[3].
Value of the shares has been analyzed through applying various methods and techniques. The stock price of the comapny must be as follows:
|
Dividend Discount Model |
|
|
Dividend expected |
0.0142114 |
|
Growth rate |
11% |
|
Discount rate |
59.17% |
|
Intrisic Value |
0.029289 |
|
Share Price |
1.69 |
|
Overvalued |
|
|
PE Multiple Model |
|
|
Industry PE ratio |
9.76 |
|
EPS |
0.07 |
|
Intrisic Value |
0.68 |
|
Share Price |
1.69 |
|
Overvalued |
According to both the methods, it has been found that the stock price of the comapny is overvalued. The performance of the comapny is bad while it has been presented in a better manner to manage the share price of the comapny. For computing, the value of the stock, various internal and external factors has been evaluated[4].
According to this theory, I have found that the constant dividend growth model is more reasonable. This takes into consideration all the related factors and depicts a better result accordingly.
According to the understanding and various articles, it has been found that the current methods of identifying the stock price of the comapny are not reliable as they are based on many assumptions, these models must depict the reliable knowledge by taking various other factors into the consideration such as market changes, new deals, diversification, new market, economical changes etc. these factors would offer a better result.
Cost of capital:
Further, study has been performed over the cost of capital to analyze the performance and position of the WPP AUNZ LTD. Firstly, the total cost of capital of the comapny has been analyzed which is is as follows;
|
Calculation of WACC |
||||
|
Price |
Cost |
Weight |
WACC |
|
|
Debt |
353649000 |
0.028 |
0.29742 |
0.00833 |
|
Equity |
835418000 |
0.11492 |
0.70258 |
0.08074 |
|
1189067000 |
Kd |
0.08907 |
According to this, the comapny has raised the funds through equity and debt both, the ratio of debt and equity is pretty fine. According to the table, the total cost of the capital of the comapny is 0.08907[5].
Further, according to the tax policy of the Australian government, the tax rate is 30%. So the debt valuation study and cost of debt of the comapny has been evaluated according to 30%. Additionally, it has been analyzed that the difference exists among the cost of capital and the cost of equity due to the various other factors. The cost of debt and equity has been different due to various internal and external factors.
Further, it has been analyzed that the current liabilities of a comapny should not be included into the calculations of cost of capital due to the fact that there are various other ways to calculate the short term cost of the comapny. The main pros of including are simplify the process and the main cons is diluted result.
From the calculations, it has been found that the total cost of capital of the comapny is 0.08907 which depict that comapny has to pay at least 0.08907 to the investors and debt holders for the funds. This cost is analyzed according to the total equity weight and debt weight of the comapny.
Currently, comapny has analyzed 2 new projects and made investment into them after analyzing the risk and return through the capital budgeting techniques. And the decision of raising the funds has been taken by conducting the study of WACC. Through this, comapny has identified that whether the raising funds from debt and equity would be risk free and the cost would also be less[6].
The current capital structure of the comapny has been set according to the standards. Through the current capitals structure of the comapny, it has been analyzed that the cost of equity and the cost of debt of the comapny is 0.11492 and 0.028 whereas the weight is 0.29 and 0.70 which depict that the comapny could reduce the level of equity a bit to manage the cost as well as the risk of the comapny.
The optimal capital structure of the comapny depends over the various factors such as risk, return, economy, comapny, stakeholders etc. the optimal capital structure is the stage where the debt and equity has been raised in such a proportion that the cost and the risk related to the funds are in the control of a comapny.
Analysis of Market:
Further, the market analyze study has been conducted. The financial performance has been analyzed to the industry’s performance. Through the study, it has been found that the financial performance of the comapny is bit better than the industry’s performance due to the strategies and policies of the comapny.
Yahoo finance (2017) depict that the performance of the comapny is becoming better day by day[7]. AFR (2017) depict that the stock and dividend performance of the comapny is becoming better[8]. Further, the study over Morningstar, 2017 depict that the company is required to make some changes into its capitals structure to reduce the level of the cost and make the comapny more profitable. [9]
Conclusion:
According to this report, comapny is performing well at every phase. The policies of the comapny are competitive and the comapny is grabbing the market continuously. Through this report, it is depicted to the investor to invest into the comapny for long term as well as short term to manage the savings and get the high return.
References:
AFR, WPP AUNZ LIMITED, Retrieved from https://www.afr.com/research-tools/WPP/company-profile/operational-history available on 13th Oct 2017, 2017.
Bloomberg, WPP AUNZ LIMITED, Retrieved from https://www.bloomberg.com/quote/WPP:AU available on 13th Oct 2017, 2017.
Google finance, WPP AUNZ LIMITED, Retrieved from https://finance.google.com/finance?q=ASX:WPP available on 13th Oct 2017, 2017.
Home, WPP AUNZ LTD, Retrieved from https://www.wppaunz.com/ available on 13th Oct 2017, 2017.
Morningstar, RGIONAL EXPRESS LIMITED, Retrieved from https://financials.morningstar.com/cash-flow/cf.html?t=REL®ion=aus&culture=en-US available on 13th Oct 2017, 2017.
Morningstar, WPP AUNZ LIMITED, Retrieved from https://financials.morningstar.com/cash-flow/cf.html?t=WPP®ion=aus&culture=en-US available on 13th Oct 2017, 2017.
Yahoo finance, WPP AUNZ LTD, Retrieved from https://au.finance.yahoo.com/quote/WPP.AX/history?period1=1372530600&period2=1464633000&interval=1mo&filter=history&frequency=1mo available on 3rd Oct 2017, 2017.
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