Economics Homework Help

Details of the task

Please read the article entitled “DIVIDEND CUTS BY UK COMPANIES THIS YEAR EXCEED £30 BILLION” from Morningstar which can be found here:

https://www.ajbell.co.uk/news/dividend-cuts-uk-companies-year-exceed-ps30-billion

The article mentions the following companies listed on London Stock Exchange:

• BP
• GlaxoSmithKline
• Legal & General
• Diageo
• Tesco
• SSE
• Prudential
• Anglo American
• CRH
• Unilever
• 3i
• Standard Life Aberdeen
• CCH
• London Stock Exchange Group
• Admiral
• Smith & Nephew
• SEGRO
• Hargreaves Lansdown
• Berkeley Group
• Pearson
• DCC
• Hikma Pharmaceuticals
• Croda
• Sage
• Spirax-Sarco Engineering

(Vodafone has been omitted as we will use it as an example in class)

You will be allocated ONE company from the list above.

Write a report to an investor considering investing in the company that you have selected, referring to the company’s listing on the London Stock Exchange. Your report should cover the following areas:

(a) Discount Rates & Capital Structure

i. Calculate your chosen company’s Cost of Equity (Ke), Cost of Debt (Kd), and Weighted Average Cost of Capital (WACC) for each year for at least the last 5 years. Show your workings and state the sources for any of your assumptions.

(15 marks)

ii. Critically assess and discuss the capital structure that your chosen company has and the impact that these choices have made on its cost of equity, cost of debt, and WACC. If your company has any debt funding, assess its ability to make the repayments required using a range of appropriate ratios.

(10 marks)

(b) Dividend Policy:

i. What has the company paid out as dividends in each of the last 5 years? How is it changing?

ii. Critically assess whether these pay-outs are affordable using a variety of measures.

iii. Critically analyse whether the dividends that have been paid are consistent with the company’s stated dividend policy.

Provide appropriate academic theory on dividend policy where appropriate.

(15 marks)

(c) Valuation

Value the equity shares of your chosen company using both

• Static valuation multiples
• An absolute valuation technique of your choice

In both cases justify your choice of any parameters that you use.

(20 marks)

(d) Critically discuss where your chosen company is in the Corporate Life Cycle discussed during the module, and described in Corporate Financial Strategy by Ruth Bender, by analysing its:

• Revenue & profit growth
• Financing (proportions of debt and equity funding )
• Free Cash Flow
• Dividend Payout ratio

Justify your answer of where the company is in its lifecycle with a range of comparisons of the company’s performance

(20 marks)

(e) Using the share price information analyse Shareholder Value performance for your company over at least the last 5 years. Critically assess its performance on each of the seven Rappaport Value Drivers, and compare its performance against its leading competitors.

(20 marks)

Total (100 marks