PARTICULARS |
PRICE OF SHARES |
GROWTH |
COST OF EQUITY Computed by using the CAPM model |
RISK FREE RATE OF RETURN |
BETA |
MARKET RATE |
INFORMATION TECHNOLOGY |
|
|
|
|
|
|
ADACEL TECHNOLOGIES LIMITED |
0.05 |
-0.37% |
7% |
2.77% |
1.25 |
6.5% |
ANIMOCA BRANDS CORPORATION LIMITED |
0.55 |
0.17% |
11% |
2.77% |
2.25 |
6.5% |
Altium |
22.28 |
1.67% |
7% |
2.77% |
1.1 |
6.5% |
|
|
|
|
|
|
|
ENERGY |
|
|
|
|
|
|
AUSTRALIS OIL & GAS LIMITED |
0.39 |
-20.00% |
9% |
2.77% |
1.3 |
7.7% |
AUS ASIA MINERALS LIMITED |
0.01 |
1.00% |
6% |
2.77% |
0.68 |
7.7% |
WORLEYPARSONS LIMITED |
17.44 |
1.99% |
11% |
2.77% |
1.71 |
7.7% |
2.43 |
0.83% |
10% |
2.77% |
1.4 |
7.7% |
|
|
|
|
|
|
|
|
FINANACIALS |
|
|
|
|
|
|
Westpac |
29.58 |
-0.87% |
8% |
2.77% |
1.01 |
8.2% |
National Austtralian Bank |
28.4 |
-0.63% |
9% |
2.77% |
1.18 |
8.2% |
SUNCORP GROUP LIMITED |
13.93 |
-0.29% |
8% |
2.77% |
0.89 |
8.2% |
This dividend discount model has been used to compute the future share price of companies
Dividend Discount Model |
|
Price of the company |
D1/ Ke-G |
D1 |
Dividend payment |
Ke= |
Cost of the equity |
G= |
Growth rate |
Particular |
Net income( $ in million |
Dividend pay-out ratio |
Dividend payment |
Retention ratio |
Growth rate |
KE |
D1 (In million) |
KE-G |
Share price of Company |
Information technologies |
|
|
|
|
|
|
|
|
|
COMPUTERSHARE LIMITED |
2105.8 |
2% |
45.48528 |
98% |
2.1% |
7% |
46.45 |
5.3% |
873.2 |
WISETECH GLOBAL |
1537 |
0% |
2.6129 |
100% |
0.2% |
11% |
2.62 |
11.0% |
23.8 |
Altium |
63.31 |
2% |
1.2662 |
98% |
2.0% |
7% |
1.29 |
4.9% |
26.3 |
|
|
|
|
|
|
|
|
|
|
ENERGY |
|
|
|
|
|
|
|
|
|
BHP Billiton |
64.29 |
2% |
1.41438 |
98% |
2.2% |
9% |
1.44 |
7.0% |
20.8 |
CALTEX AUSTRALIA LIMITED |
24.35 |
2% |
0.36525 |
99% |
1.5% |
6% |
0.37 |
4.6% |
8.0 |
WORLEYPARSONS LIMITED |
520 |
3% |
15.6 |
97% |
2.9% |
11% |
16.05 |
8.2% |
195.7 |
APAC COAL LIMITED |
-235 |
0% |
|
100% |
0.0% |
10% |
0.00 |
9.6% |
|
|
|
|
|
|
|
|
|
|
|
FINANACIALS |
|
|
|
|
|
|
|
|
|
COMMON WEALTH BANK OF AUSTRALIA |
9928 |
6% |
595.68 |
94% |
5.6% |
8% |
629.28 |
2.6% |
24070.5 |
National Austtralian Bank |
4975 |
4% |
199 |
96% |
3.8% |
9% |
206.64 |
5.3% |
3871.6 |
SUNCORP GROUP LIMITED |
1075 |
5% |
56.2225 |
95% |
5.0% |
8% |
59.01 |
2.6% |
2229.9 |
(ASX. 2018).
Computation of the PE Ratio |
|||
|
MPS |
EPS |
PE ratio (MPS/EPS) |
Information technologies |
|
|
|
COMPUTERSHARE LIMITED |
17.57 |
0.57 |
30.82 |
WISETECH GLOBAL |
13.25 |
0.57 |
23.25 |
Altium |
22.28 |
0.35 |
63.66 |
|
|
|
|
ENERGY |
|
|
|
BHP Billiton |
50.3 |
|
|
CALTEX AUSTRALIA LIMITED |
30.5 |
1.4 |
21.79 |
WORLEYPARSONS LIMITED |
17.44 |
1.3 |
13.42 |
APAC COAL LIMITED |
2.43 |
0 |
#DIV/0! |
|
|
|
|
FINANACIALS |
|
|
|
COMMON WEALTH BANK OF AUSTRALIA |
70.94 |
2.2 |
32.25 |
National Australian Bank |
28.4 |
1.5 |
18.93 |
SUNCORP GROUP LIMITED |
13.93 |
0.57 |
24.44 |
(Yahoo finance, 2018).
PARTICULARS |
PE ratio |
Market Price of the shares |
KE |
Beta |
CO-EFFICIENT OF VARIANCE |
RANK (IN TERMS OF BETA/ COST OF EQUITY) |
RANK (IN TERMS OF BETA/ COST OF EQUITY) |
INFORMATION TECHNOLOGY |
|
|
|
|
|
|
|
ADACEL TECHNOLOGIES LIMITED |
0.09 |
873.19 |
7% |
1.25 |
16.8 |
8 |
3 |
ANIMOCA BRANDS CORPORATION LIMITED |
0.96 |
23.81 |
11% |
2.25 |
20.2 |
10 |
1 |
Altium |
63.66 |
26.28 |
7% |
1.1 |
16.0 |
5 |
6 |
|
|
|
|
|
|
|
|
ENERGY |
|
20.75 |
9% |
1.3 |
14.3 |
6 |
5 |
AUSTRALIS OIL & GAS LIMITED |
0.01 |
8.04 |
6% |
0.68 |
11.2 |
1 |
8 |
AUS ASIA MINERALS LIMITED |
13.42 |
195.67 |
11% |
1.71 |
15.4 |
7 |
4 |
WORLEYPARSONS LIMITED |
|
|
10% |
1.4 |
14.6 |
9 |
2 |
APAC COAL LIMITED |
|
|
|
|
|
|
|
FINANACIALS |
|
|
|
|
|
|
|
Westpac |
13.45 |
24070.55 |
8% |
1.01 |
12.2 |
3 |
9 |
National Australian Bank |
18.93 |
3871.58 |
9% |
1.18 |
12.9 |
4 |
7 |
SUNCORP GROUP LIMITED |
24.44 |
2229.93 |
8% |
0.89 |
11.7 |
2 |
10 |
(Shiller, 2015).
Notes –
Beta Information- (Yahoo finance, 2018)
Market Risk factor analysis- (Yahoo finance, 2018)
Risk free rate of return-(Bloomberg, 2018)
After evaluating risk, return, growth rate and dividend payment, it could be inferred that if investors invest their capital In Australian Oil and Gas Company then they will have good amount of return (Beatson, & Chen, 2018). This investment option will give higher return and less risk (Please see the attached excel file (Shiller, 2015).
There are several reasons of selecting this investment option such as risk, return and future market price of Australian Oil and Gas Company. Furthermore, the cost of capital of company is also very low i.e. 6% which shows positive outlook for the increased return on capital employed (Diba, & Grossman, 2018)
It is considered that Warren Buffet is the biggest investors who endeavoured towards investing capital in several stocks on the basis of several factors such as profitability, return on capital employed, risk associated with the investment and market outlook. He before investing capital in particular stocks analysis several factors which helps him to identify whether the stock will give good amount of return on investment or not. He has been the biggest investors and has been appointed as CEO of Bershire Hathway (Barbu, D’Amico, & De Blasis, 2017).
He takes investment decisions on the basis of several factors such as profitability, return on capital employed, and risk associated with the investment and market outlook (Christofi, 2017).
There are several notes which Warren Buffet has considered before investing capital in different companies (Shiller, & Beltratti, 2015).
In case of Information technology (Warren buffet)
INFORMATION TECHNOLOGY |
ADACEL TECHNOLOGIES LIMITED |
ANIMOCA BRANDS CORPORATION LIMITED |
Altium |
He analysis that the profitability of the Adacel Technologies Limited has been showing average 12% net profit on sales since last five years. The share price of company is also stable and growth rate is also reflecting the positive outlook for the investment purpose (Campbell, & Shiller, 2018).
In case of Animoca Brands Corporation Limited, company has been showing the good amount of increment in the share price which reflects that company has growth with the drastic rate since last five years. Investors should invest their capital in long run (Rapach, & Wohar, 2015).
In relation to Altium Company, Warren Buffet has shown that return on capital employed of the company has increased due to its low amount of cost of capital. Investors will easily create value if they will invest their capital in this company. 10 years (Timmermann, 2016).
ENERGY |
AUSTRALIS OIL & GAS LIMITED |
AUS ASIA MINERALS LIMITED |
WORLEYPARSONS LIMITED |
APAC COAL LIMITED |
It is analyzed that in case of Australian Oil and Gas Limited, the share price of company has increased by 10% since last five years. It has increased the net profit by average 20% since last five years (Hatemi, & El-Khatib, 2018). The beta value of company is also higher which might be negative indicator for the investors (Giglio, & Kelly, 2017).
The net profit margin of AUS Asia Mineral Limited has increased by average 15% since last three years and beta value of company has also been stable. As per the Warren Buffet, value of the company will be lower as compared to last five year data which reflects the negative business value (Agosto, & Moretto, 2015).
The value of WORLEYPARSONS LIMITED has been gone down and shown negative outlook for the investment purpose. The Warren Buffet has revealed that in near future the value of the company will increase with the drastic rate (Otrok, Ravikumar, & Whiteman, 2012).
APAC COAL LIMITED will have higher financial leverage and provide less return on investment. As per the view of Warren buffet Company is not desirable Company for the investment purpose (Lazzati., & Menichini, 2015).
In case of the financial sectors, there are several companies have been selected.
FINANACIALS |
Westpac |
National Australian Bank |
SUNCORP GROUP LIMITED |
As per the views of Warren Buffet the profitability of the Westpac has increased by 12% since last five years. The price of the company is $ 29.055 which reflects the variation in the share price of the company (Bao, & Feng, 2017).
National Australian Bank is having $ 28 share price which have increased by 18% since last two years (McMillan, 2018). The higher profitability and increased return on investment has shown positive outlook for the investment purpose as per the views of the Warren Buffet (Zuzik, et al. 2018).
In context with the Sun Corp, Warren Buffet has maintained lower profitability and increased return on investment. The invested capital for the long run will be value creation in this company as per the views of the Warren Buffet (Yahoo finance, 2018).
It is observed that as per the views of the Warren Buffet the share price of the company and its business outlook in future is based on the several factors such as profitability, return on capital employed, risk associated with the investment and market outlook. If these factors are positive then it will help investors to create value on the investment. There is other factor which needs to be considered by the investors before investing capital (McMillan, 2018).
In terms of the Return on equity
Investors needs to analysis whether the company has higher return on capital employed and higher return on equity (Montani, Perrini, Gervasio, & Pulcini, 2017).
Financial leverage of company
The high level of financial leverage in particular company may be risky factors for the investment purpose (Yahoo finance, 2018).
Profitability of the business
The profitability of the business is the major factors for the increasing growth of the business (Fama, 2017).
Nature of the organization and legal compliance
Legal compliance, nature of business and less complexity reflects that company has low level of business outlooks (Levine, & Zervos, 2017).
Warren Buffet follows main two-column Valuation Methodology to identify the market value and intrinsic value of company (Lee, & Heo, 2016).
These all models are used to evaluate the share price of company (Tsai, 2018).
The cost of equity, offered dividend, return on investment are used to compute the share price of company (Chan, et al. 2018).
This model is ideally used when the company has been offering zero amount of dividend to its shareholders (Yahoo finance, 2018).
After evaluating these factors, it could be inferred that investors should all these factors before investing capital in particular company. It helps them to analysis all the negative and positive factors of the selected stocks for the investment purpose (Andalib, Tavakolan, & Gatmiri, 2018).
After evaluating the methods or theories given by Warren Buffet and the methods available to identify the share price, it could be inferred that Investors needs to evaluated all the factors such as profitability, return on capital employed, risk associated with the investment and market outlook before investing in particular company.
Agosto, A., & Moretto, E. (2015). Variance matters (in stochastic dividend discount models). Annals of Finance, 11(2), 283-295.
Andalib, M. S., Tavakolan, M., & Gatmiri, B. (2018). Modeling managerial behavior in real options valuation for project-based environments. International Journal of Project Management, 36(4), 600-611.
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Bao, G., & Feng, G. (2017). Testing the Dividend Discount Model in Housing Markets: the Role of Risk. The Journal of Real Estate Finance and Economics, 1-25.
Barbu, V. S., D’Amico, G., & De Blasis, R. (2017). Novel advancements in the Markov chain stock model: analysis and inference. Annals of Finance, 13(2), 125-152.
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Campbell, J. Y., & Shiller, R. J. (2018). Stock prices, earnings, and expected dividends. The Journal of Finance, 43(3), 661-676.
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Montani, D., Perrini, F., Gervasio, D., & Pulcini, A. (2017). The Importance of “Contextualisation” in Small and Medium-Sized Firms Valuation: Evidences from an Italian Case Study. International Journal of Business and Management, 13(1), 70.
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