Assessment 2: Part (A) – Group Report
Additional Task Description and Useful Guide
Rationale:
The purpose of this assignment is to allow students to take some of the main concepts introduced in the course and provide a framework for applying them to a company of their choosing. One of the best ways of learning finance/financial planning is to apply the models and theories we encounter real-world contexts and problems. You will evaluate the company stock price, and estimate the impact of an important announcement on its stock prices. Most importantly, you will learn skills in working collaboratively with your team members.
Overview:
You have recently started an internship position with Magnum Equity Management (MEM), a large asset management company with A $850 million under management located in Brisbane CBD. The company’s core investment focuses on the domestic share market, however, investments in share markets have provided lower than expected returns in the recent years.
MEM’s Chief Investment Officer (CIO) has assigned you and your investment team to perform an investment analysis on a portfolio of companies listed on the S&P/ASX300 and provide a recommendation if the company analysed should be included as part of MEM’s investment portfolio.
You can choose any company from ASX300 that has been listed on the stock exchange for at least 3 years, and with positive earnings and positive dividend growth for the financial years. Australian financial year starts on 1 July and ends on 30 June.
To assist you on this task, your investment team can consist of up to 3-4 members. As soon as you have chosen your company or team members, please use the online signup tools to sign up your group members.
This task consists of two sub-parts.
Part 1 – Individual Company/Fundamental Analysis:
Each individual student is required to pick two listed companies from the S&P/ASX300 index and perform analysis based on fundamental analysis. Fundamental analysis requires calculation on capital asset pricing model (CAPM), dividend discount model (DDM). For example, in a group of 3, you will be analysing 6 companies and a group of 4, 8 companies. See below for a sample table. Your fundamental analyses should provide analyses of the selected companies and not merely the calculations of CAPM and DDM.
Part 2 – Portfolio Analysis:
Students will now combine the individually selected companies in a portfolio to analyse, conclude and recommend based on the findings. This part involves forming 2 portfolios with the selected companies in Part 1 for each year starting from 2018/2019 financial year, with at least 4 years of data. The 2 portfolios are (i) minimum risk and (ii) maximum return, then report and evaluate the outcome of the portfolio with:
- Portfolio returns and risk
- Portfolio correlation and beta
- Portfolio Sharpe ratio
In your portfolio report provide an analysis on risk return and portfolio impact when you combine selected companies in a portfolio context. This analysis should also include a discussion on risk preference and portfolio choice for individuals.
Note:
- See below for a sample table.
- Sample table is indicative and not prescriptive.
- Your calculations that you present, are there to guide your analysis and not meant to be whole of the assignment.
After presenting all the analyses, you will now provide a recommendation based on your findings.
Do take note that your report is presented to the CIO who has finance background and understanding of finance valuation models. You should provide some insights to your companies that you are analysing.
Remember, your current internship position is under 3 months’ probation period until 30 June 2022. Upon completing the task on hand, you will have a chance to evaluate how you and your team members have performed in Part B – Peer and Self-Assessment. Subsequently, your department secretary will arrange a meeting with CIO to discuss whether you have passed the probation period and be promoted to a junior investment analyst position.
Extra Guidance:
More information on S&P/ASX300
Stock screener
Word limits (±10%) for the whole report, including individual and group parts.
- 2,000 words for 3 group members
- 2,500 words for 4 group members
Downloading S&P/ASX300 stock prices using Yahoo Finance
- Visit https://finance.yahoo.com/
- Search for S&P/ASX300 using this quote à ^AXKO
- Click on <Historical Data> à Select time period, starting from July 2019 to June 2022 à Frequency <Daily> à Click on <Apply> then <Download Data>
Make sure the daily data used is up to date (30th April 2022)
- Repeat steps above for all other company stock prices.
Downloading company dividends information using Yahoo Finance
- After searching for your company stocks, on the same tab <Historical Data> à click on Show <Dividends Only> à <Apply>
- Use the dividends information to calculate appropriate models.
Calculating beta in Excel
- Please see this guide: https://www.amttraining.com/knowledgebank/valuation/quickly-approximate-a-bloomberg-historical-beta-calculation-using-microsoft-excel/
What is the expected market return – E(RM)?
- For simplicity, let’s assume E(RM) is 5.5% and RF is 1.5%. These will be used in CAPM calculation.
- Background on E(RM) of 5.5%, please see Exhibit 1, page 3 of https://www.asx.com.au/documents/research/russell-asx-long-term-investing-report-2016.pdf
- Background on RF between 1.5%, please see http://www.rba.gov.au/statistics/cash-rate/
Technical analysis (optional)
- Plot either one graph for all companies or individual graphs. These graphs should show the price and volume.
Fundamental analysis & Portfolio analysis
- Present all the calculations into the following tables, also shown in the Excel file for your convenience.
NOTE: You are required to attach/submit the Excel file together with your raw company stock price data and calculations, linking all numbers in the formula to show where the numbers are obtained for verification purposes.
Table 1: Sample Fundamental Analysis
| Company A | Company B | Company C | Company D | |
| Share price as at 30 June 20xx | ||||
| Beta | ||||
| CAPM | 0.0000 | 0.0000 | ||
| Dividends | ||||
| Growth | ||||
| DDM (P0) | ||||
| Valuation | Buy | Hold? | Sell? |
Note: Please only present the final calculation in the table. You can present your calculations/workings in the Appendix for each of the models.
Table 2: Portfolio outcome for minimum risk
| Minimum Risk | 2018/2019 | 2019/2020 | 2020/2021 | 2021/2022 |
| Portfolio weights | ||||
| Company A | ||||
| Company B | ||||
| Company C | ||||
| Company D | ||||
| Portfolio return | ||||
| Portfolio risk | ||||
| Portfolio correlation | ||||
| Portfolio beta | ||||
| Portfolio Sharpe ratio |
Note: Please only present the final calculation in the table. You can present your calculations/workings in the Appendix for each of the models.
Table 3: Portfolio outcome for maximum return
| Minimum Risk | 2018/2019 | 2019/2020 | 2020/2021 | 2021/2022 |
| Portfolio weights | ||||
| Company A | ||||
| Company B | ||||
| Company C | ||||
| Company D | ||||
| Portfolio return | ||||
| Portfolio risk | ||||
| Portfolio correlation | ||||
| Portfolio beta | ||||
| Portfolio Sharpe ratio |
Note: Please only present the final calculation in the table. You can present your calculations/workings in the Appendix for each of the models.
NOTE AGAIN: You are required to attach/submit the Excel file together with your raw company stock price data and calculations, linking all numbers in the formula to show where the numbers are obtained for verification purposes.
