INTRODUCTION
The portfolio includes six companies: Australian Agricultural Company Ltd, Bendigo and Adelaide Bank, Gunns Limited, CSR limited, Bhp bradken limited, Bkn Boral limited. The companies are from different industrial sectors. A portfolio should have a range of investments so that a negative impact in one investment can be offset by another investment in the portfolio. The industries include: financial services, timber manufacturing companies, forestry and industrial.
AUSTRALIAN AGRICULTURAL CO. LTD
Was established in 1824, and the oldest operating company in Australia. Operates 19 cattle stations, 2 feedlots and 3 farms. It has over 7.2 million hectares (about 1.1% of Australia's land mass) with the largest beef cattle Company in Australia with over 500 staff. It runs about 485,000 beef cattle.
There customers are both domestic and local, therefore they are involved in international transactions. Became a publicly listed company on August 10, 2001.Is managed from Brisbane with regional management located on each station. Committed to being an industry leader in developing its operating systems using the world's best practices. It has a wide accreditation through the CattleCare quality assurance program.Has one of Australia's leading composite breeding programs.
BENDIGO & ADELAIDE BANK
Bendigo Bank merged with Adelaide Bank in November 2007. March 2008: shareholders voted in to change the merged company's name to Bendigo and Adelaide Bank Limited.
Before the merger, Bendigo Bank delivered its products and services through almost 900 outlets Australia-wide. It comprises of company owned branches, community bank, agencies and rural bank outlets.The branches are in Victoria and Queensland. With the merger, it has 400 branches and national headquarters remain in the city of Bendigo. Regional branches:Melbourne Docklands, Ipswich, Queensland and Adelaide, South Australia.
GUNNS LIMITED
Gunns Limited is a major forestry enterprise located in Tasmania, Australia. 1875: Founded by brothers John and Thomas Gunn and is privately owned. It has over 900 square kilometers of plantations, mainly eucalyptus trees. Gunns is the largest export woodchip operation in the Southern Hemisphere, and one of two chip export companies sourcing raw materials from Tasmanian forests.
CSR LIMITED
CSR Limited is a major Australian industrial company, that producesaluminum and building products. The company is public, therefore traded in Australian Stock exchange. It has a diversified shareholding with predominantly Australian fund managers and retail owners.
1855: Founded in Sydney as the Colonial Sugar Refining Company.
Its progress over the years: Refined sugar products for the retail market are now produced in a joint venture with Mackay Sugar Co-Operative (75% controlled by CSR), who operate refineries in Mackay (Queensland), and Melbourne. The CSR brand is used on most of the retail sugar products produced. The production makes up around 60% of the sugar on the Australian domestic market, and 80% of that in New Zealand. Using the molasses by-product from the sugar mills, the company also distills ethanol for use in fuel ethanol manufacture, and varying grades of domestic industrial ethanol for food production and other chemical processes.
BHP BRADKEN LIMITED
Bradken Limited is a global manufacturing company headquartered in Australia. It has 26 manufacturing facilities throughout Australia, New Zealand, the United Kingdom, the United States of America and China, therefore operates internationally.
1922: Bradken business was originally established as Bradford Kendall by two BHP steel works employees - Leslie Bradford and Jim Kendall.
December 1974: the company changed its name to Bradken Consolidated Limited.
1981 -2000: the Bradken business was a division of Australian National Industries Limited (ANI), an under-performing industrial conglomerate.
2000: ANI was taken over by Smorgon Steel and broken up. The Bradken casting business was sold to private equity and subsequently refloated on the ASX in August 2004.
BKN BORAL LIMITED
Multinationalcompanythat deals with building and construction materials. Established in Australia, and has branched in Asia and USA. It is the newer version of Boral limited that mainly dealt with energy assets.It is publicly listed in the Australian Stock Exchange market.
Its operations include: asphalt, road line marking, concrete, plasterboard, timber, windows, quarry, landfill, transport, roof tiles, bricks and pavers.
FUNDAMENTAL ANALYSIS
Fundamental analysis looks at matters like future earnings and dividends to assess the intrinsic value. Fundamental analysis is essential for market efficiency. It takes two different approaches in its search for mispriced securities:
Estimating the intrinsic value and comparing the same with the prevailing market price to determine whether the security is underpriced/ fairly prices or overpriced.
Estimating a security's expected return, given its current price an intrinsic value, and comparing it with the 'appropriate' return for securities with similar characteristics.
There are two approaches that should be considered while doing fundamental analysis:
Bottom up approach
Bottom up investors conduct extensive research on individual companies. This includes a financial analysis of each company mainly focusing on the performance of each organization. The business cycle and the market or industry of each company at this stage is ignored. The bottom up approach can be combined with the metrics of the fundamental analysis which are outlined below.
The following factors are considered while carrying out fundamental analysis (key financial metrics): Earnings per share, price per earnings, earnings growth, and price to sale, price to book value, dividend payout ratio, dividend yield, and return on equity.
Australian Agricultural co. ltd
Bendigo&Adelaide Bank
Gunns limited
CSR limited
BhP bradken limited
Bkn Boral Limited
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
return on equity
0.05
-0.31
0.062
0.064
0.02
0.04
-0.03
0.15
0.15
0.19
0.024
0.027
book value per share
0.904
0.997
1.15
0.79
2.41
6.8
7.72
24.89
34.27
33.2
6.74
7.66
earnings per share
0.3
-20.3
67.4
25.6
2.8
8.1
8.2
29.7
50.8
50.6
11.4
12.8
dividend payout ratio
0
0
0.04
0.04
0
0.49
6.28
5.04
0.67
0.45
0.48
1.33
dividends per share
0
0
141.5
180.6
0
4
51.5
149.7
34
23
5.5
17
Table 1: metrics of fundamental analysis
Return on equity
Return on equity can be decomposed into three factors: net profit margin, asset turnover and leverage. It is the most important indicator of financial performance.
Australian agricultural Co. ltd: the return on equity has increased over the period from -0.31 in 2009 to 0.05 in 2010. In 2009 it had a loss of $53737 but the consequent year it had profit after tax of $907. This caused the increase in the return on equity in the company. It therefore shows an improvement in the management of equity that the firm raised in the year 2009-2010.
Bendigo & Adelaide bank: the return on equity in the firm has slightly increased over the years. The profit after tax increased by $2,300 whiles the equity earnings of the company also increased slightly by $220.2.
Gunns Limited: there was a slight improvement by 0.02 in the company. There was a drop in the profit after tax by almost 50% from $56236 to $28498.
CSR limited: the return on equity of the company has decreased to a negative value. This may have been caused by the loss that the company incurred in 2010 as compared to the profit it got in 2009 of $230.2. The equity did not change significantly over the years but there was a slight increase. The company should come up with proper and efficient ways of managing the company's operations and equity.
Bhp bradken limited: there was a slight decrease in the return to equity by a small margin of $0.04. The profit after tax increased by approximately $5,000 while the equity earnings increased as well by a greater proportion.
Bkn Boral limited: there was an insignificant decrease in the return on equity of the firm over the years. The equity slightly increased and the profit after tax slightly decreased by a greater proportion causing the net effect of a decrease.
Book value per share
It asses the level of safety associated with the investment in stock of the company. It is calculated as the paid up equity capital plus the reserves over the total number of outstanding shares in the company.
Australian agricultural Co. ltd: there is a slight decrease in the book value per share of the company. The number of outstanding shares did not change over the years however the total reserves of the company increased by approximately 5%.
Bendigo & Adelaide bank: there was an increase in the book value of the company by $4. The total reserves of the company were at -$22.3 while the capital remained at the same level of the two years. The number of outstanding shares increased slightly.
Gunns Limited: the book value per share of the company decreased over the years by 4 cents and this may have been caused by the significant increase in the number of outstanding shareholders by almost 70% from 2010 to 2009. This could mean that the company sold more share to the public so as to raise finances for the company.
CSR limited: there was a significant decrease in the book value per share of the company by $14. The number of outstanding shareholders increased from 52.41 in 2009 to 221.73 in 2010. This may have caused the decreased since the paid up capital and reserves changed insignificantly.
Bhp bradken limited: the book value per share of the company remained relatively the same. There was an increase in the paid up capital of the company which was cancelled out by the increase in the number of outstanding shareholders.
Bkn Boral limited: a slight decrease in the book value per share of the company was noted that could have been caused by the increase in the number of outstanding shareholders of the company. The other components of book value per share remained relatively the same.
Earnings per share
Australian agricultural Co. ltd: there was an increase in the earnings per share of the company from -20.3 cents in 2009 to 0.3 cents in 2010. Since the equity remained the same over the years, the increase could have been as a result of an increase in the outstanding shares of the company. Also, in 2009, the company had earnings (loss) of 57737 and in 2010 it gained and earned profits of $904. This could have resulted in the overall increase in EPS.
Bendigo & Adelaide bank: THERE was a significant increase in the EPS from 2009 to 2010 by over 100%. Since the earnings of the company remained relatively at the same level, the increase could have been caused by an increase in the total number of outstanding shareholders.
Gunns Limited: the EPS of the company decreased by 150% from 8.1cents in 2009 to 2.8 cents in 2010. The earnings of the company decreased by almost 50% from year 2009 to 2010 and this may have resulted in the significant decrease in the EPS since the number of outstanding shareholders did not change over the years.
CSR limited: there was a significant decreased in the EPS of the company; 29.7 cents in 2009 to 8.2 cents in 2010. The company had a loss in 2010 of $46.2 that could have resulted in the drop in EPS.
Bhp bradken limited: the EPS of the company over the years did not change much. In 2009 it was at 50.6 cents while in 2010 it was 50.8 cents because the earnings and number of outstanding shares of the company did not change.
Bkn Boral limited: there was a slight decrease in the EPS of the company that may have been caused by the slight drop in earnings of the company from $74.9 in 2009 to $68.7 in 2010.
Dividends per share
Australian agricultural Co. ltd: there were no dividends declared in the company in 2009 and 2010: final or interim dividends. The company may have not earned enough profits in 2010 to cover for the loss in 2009 and also give a proportion to the shareholders of the company.
Bendigo & Adelaide bank: the DPS of the company decreased by $40 from 2009 to 2010. This may have resulted from a decrease in the earnings of the company which slightly decreased. Therefore, the decreased in the DPS can be best explained by introduction of new projects and investments that the company had to undertake.
Gunns Limited: there was a decrease in the DPS of the company. In 2009 the company paid dividends of $4 per share while in 2010 it did not pay any dividends to its shareholders. It may have been because of the decrease in the earnings of the company by 50%.
CSR limited: the DPS of the company decreased from $149.7 in 2009 to %51.5 in 2010. The decrease was tremendous and the shareholders of the company did not expect it. However, the earnings of the company in 2010 were at a loss of $46.2 and the price of the shares may have decreased causing the PDS of the company to decrease as well.
Bhp bradken limited: the DPS of the company increased by $11 that may have been caused by the slight increase in earnings of the company from $65,023 in 2009 to $70,770 in 2010.
Bkn Borallimited: the DPS of the company dropped by over 50%. The earnings of the company remained at the same level therefore the drop in DPS may have been caused by an increase in the number of shareholders in the company and no change in the earnings attributable to the shareholders of the company.
Top down approach:
It looks at the overall picture in the economy and the financial world. It analyses the different sectors each organization is under and their performance in the market. The stocks of the companies under consideration and their investments are analyzed and compared to that of the company. The geography, size and industrial sector of each company can also be considered.
Taking into consideration all the six companies, a top down approach would involve:
-Australian agricultural company limited: it deals in the beef cattle chicken industrial sector and is based in Brisbane Australia. It has about 500 employees, and this can tell the size of the organization.
- Bendigo and Adelaide Bank: it was a result of a merger between two banks it deals in the financial services sector and provides products such as banking, financial related services. Its headquarters are based in Bendigo, Australia.
- Gunns limited: it is based in Tasmania, Australia and deals in the timber production industry. The employees of the company are about 1662, larger than Australian Agricultural Company Limited.
-CSR limited: it's based in Sydney Australia and is in the industrial company. It publicly trades in the Australian Security Exchange.
- Bhp bradken limited: it's a global manufacturing company that is based in Australia, New Zealand, UK, USA and China. It is larger than all the other five companies because it offers its products internationally.
- Bkn Boral limited: it is based in Sydney and deals with construction related businesses.
Overall, the six companies are all based in different sectors. Therefore while analyzing the performance of the company's one would have to take into considerations the different economic and political factors of the industry and the various risks that the company may face. The banking industry is more at risk than the others because of the fluctuation in inflation rate in the economy which also affects the interest rates that the company may offer to their customers. All the six companies are based in Australia therefore the political factors that should be considered are all the same for the six companies.
TECHNICAL ANALYSIS
Technical analysis views the investment game as an exercise in anticipating behavior of market participants, castle in the air approach. It looks at charts to understand what the market participants have been doing. It's the oldest approach to equity investment. It's the study of market generated data like prices and volumes to determine the future direction of price movements.
The following are the assumptions that are made by analysts while doing a technical analysis of a company:
Market prices are determined by an interaction of supply and demand forces
Supply and demand forces are influenced by a variety of factors: both rational and irrational.
Baring minor deviations, stock price trend tend to move in fairly persistent trends.
Shifts in demand and supply bring about changes in the trends
Irrespective of why they occur, shifts in demand and supply can be detected with the help of charts of market actions.
Analysis of past market data can be used to predict future price behavior: in analyzing the sic companies, financial 2009 and 2010 have been considered.
According to Charles Dow, "the market is considered as having three movements: all going at the same time. The first is the narrow movement from day to day. The second is the short swing, running from two weeks to a month or more, the third is the main movement, covering at least four years in its duration.
Primary movements
Australian agricultural company limited
It has both bullish and bearish strategy. Between November and march, there was a major upward movement whereby the high point of each rally is higher than the high point of the preceding rally and the low point of each decline is higher than the low point of the preceding decline. This represents the technical location.
Bendigo And Adelaide Bank Limited
The red line shows the daily fluctuations whereby the price movement was instable; it had both bearish and bullish strategy. The green shows the average movement of the prices of the company over the months, primary movements. This represents a bear market because of the major downward trend between the month of March and April. The price seems to be increasing but at a slower rate.
GUNNS limited
The overall performance of the price movements of the company has been positive. There has been an increase between the months of July and May, with slight decreases in May. This is a bull market because of the upward trend in most times of the month.
CSR limited
There was a bull phase in the market in the month of February to march because of the sudden increase in prices and also the volume increased significantly. At the end of the month, the prices dropped, but the volume did not change significantly.
Bhp bradken limited
There is an upward movement in the prices between July and May. However, there was a major downward movement (bear market) as the stock price decreased but the volume remained relatively the same. The volume of trading in the company seems to be at a minimal of $1 million, this shows that the company is trading well in the market.
Bkn Boral limited
There is a recurrence in downward movements in the price (bear market). The price seems to be unstable. In comparison to all the other companies, it has reached the lowest level in trading.
From the analysis done, we can see there are major differences in the technical and fundamental analysis. These include:
Technical analysis looks at the short term price movements i.e. the monthly trends while fundamental analysis has considered two years, 2009 and 2010.
Technical analysis mainly focuses on the inner market, price and volume and fundamental analysis has considered different components of the performance of a company.
