Myer Holdings Company - Products and Services, SWOT analysis, Capital Asset Pricing Model - Example

Students Name: Instructors’ Name: Course Code and Name: Date of Submission : Myer Holdings Company Introduction Myer Holdings Limited is a departmental store group operating sixty seven stores countrywide. It is the largest departmental store group in Australia offering eleven core categories of products for over a hundred years consisting of apparel and fashion for kids, men and women. These are women clothing, men clothing, fashion for the youth, children clothing, intimate apparel, beauty, cosmetics, electrical goods, toys, home wares and general merchandise. It also offers a customer loyalty program. It is one of the listed companies in the country’s stock exchange. History The retail group was established by Sidney Myer together with his elder brother Elcon after relocation to Melbourne from Russia. The first store was opened in Bendigo in 1900. Its growth was brought by taking over and buying of other stores after successful business operations. Change of leadership overtime did not kill its prosperity as it has continued to grow. Evolution of its status is due to its good advertisement and promotional activities. It changes with time i.e. its initial slogan used to be ‘is my store’ but they later transformed it to ‘find wonderful’, showing a change of focus, an overall change of brand and a better advertising strategy. Today, MYR, as it is usually referred to in the securities market, has transformed to a leading clothing store with more than 50,000 shareholders and about 13,000 people are employed. Products and services a) E-commerce As a potential solver to rivalry, Myer engages in e-commerce. This has led to an increase switch from ordinary shopping to online shopping. With better offers online and longer services, its customers find it reliable when shopping at all times and places and have no need waiting for products being transported to their premises or addresses. There is a Myer Home where customers or consumers can search for available services at different places. Catalogues for different availabilities in the stores are given for the people to get their best brands. Omni-channel strategy has already been implemented in a rather rapid way, stimulating the online services. b) Loyalty programme Myer One, membership card given to customers, links them to reward programmes, great offers and invitation to various VIP functions. There are also interest-free promotions throughout the year. The customer loyalty programmes of Myer results to 70% of all sales and 9% increase in loyal customers making it reach 5 million loyal customers. Several changes have occurred within the programme, Myer One app being inclusive. This enables access using smart phones. Eternal economic environmental risk Macroeconomic factors also cause a risk to the company although due to its size, fluctuation in market level is not that easy. Changes in legal and government policies, economic changes in the world and poor customer loyalty are some of the factors that can create a risk to the company. SWOT analysis This analysis stands for Strengths, Weaknesses Opportunities and Threats. The analysis is done to identify and know achievements of the company and provide an import source of information to business executives. The analysis provides a range of primary company sources presented in a clear accessible form. The words have different business meanings:- i).Strengths;- These are advantageous characteristics of a business in its operations. ii). Weaknesses;- These are disadvantageous characteristics that make a business less favourable in relation to other businesses in their operations iii). Opportunities;- These are exploitative elements a business that a business uses in its projects as an advantage. iv). Threats;- These are environmental elements that might bring problems to the business or its projects. a .Strengths -New store openings -Presence of a strong brand -High comparative sales growth -Field retail reveal -Start-up expense minimization of new business -E-commerce with advanced system enabling better shopping -Excellent insight offerings b. Weaknesses -Lack of an exempt foreign market -Huge administrative stimulus -Limited to domestic trade i.e. does not operate outside Australia -Unaffordable to middle and low income consumers c) Opportunities -Refreshment strategies -Accessibility improvement to large numbers of customers -Focus on increase in exclusive brands d) Threats -Decline of prices of dividends and shares -Drop in operations in gross profits -DJS Company is a threat Share Valuation and Myer Holdings Limited Security Analysis This is based on Australian Securities (ASX) -PPE Ratio: 10.82 TTM (05/21/15 -EPS (TTM) - $ 0.3 -Annual dividend yield 9.66% (05/21/15 -Market cap- $858.04 M - Share outstanding -585.69 M -Public float- 573.58 Franking- 100% -Ex-Dividend Date -3/26/15 -Dividend- $ 0.07 (05/07/15) Capital Asset Pricing Model (CAPM) This is a method of calculating required return of an investment by using security’s beta, risk-free rate of return and market return. This method was designed by Lintner and Sharpe (Zaheer, 2009) Calculation of CAPM involves 4 steps. For Myer Holdings Limited, it will be calculated as follows:- Step 1: Risk-free rate Risk-free rate is the rate at which a return to an investment has no risk (Balakrishnan, 2014). It is the minimum return in an investment. As for now, the Reserve Bank of Australia states it as 2.97%. Step 2: Market risk premium Market risk premium is the difference occurrying when you minus expected market return on portfolio with risk-free rate (Balakrishnan, 2014).The risk free rate for Australia by Jan 2015 is 5.75% Step 3: Beta estimate According to CAPM method, the beta of a security or asset is its measure of market risk as compared to market portfolio. Formula for determining beta is : - βMYR = ρMYR.m × σMYR σM This formula is essential if beta is not given. MarketFT.com states that Myer Holdings Limited’s beta is 1.80 Step 4: Calculation of expected return formula of CAPM E (RMYR) = Rf + βMYR (E (RM) - Rf) = 2.97 + 1.80 (5.75) =13.32% Dividend division model Dividend is a regular payment done periodically e.g. quarterly to shareholders as a result of profits to the bought shares. According to Investopaedia (2015), dividend discount model is an approach of price valuation of stock using forecasted dividends and the future expected dividends are discounted to the present value. The idea of the model is that if the obtained value from it is higher than the current share trading value, then the stock or the security is undervalued. Formula for PV = PV = D1 + D2 + D3 +…… + Dn (1+ke) (1+ke)2 (1+ke)3 (1+ke)n Where:- -D is the present value of received dividends at the end of the year. -PV is the current value of ordinary share -k is the applicable discount rate at certain risk degrees The equation being expressed as PV = D0 (1 + g) ke-g Myer had a 1.76 billion revenue increase semi-annually as reported in Jan 2015. This indicates 1.51% increase or growth. Basing on this information, PV calculation can be done as:- PV = 0.13 (1 +0.015) 1.096-0.015 =0.13195 1.081 =$ 0.12 Net Tangible Asset Backing Model According to Australian & New Zealand Securities Limited (2014), Net tangible assets are gotten by subtracting intangible assets and liabilities from tangible assets and divided with number of shares. Intangible assets like patents, copyrights, logos and goodwill are excluded (Damodaran, 2007). Future growth is also excluded. In short form, Net Tangible Asset can be written as NTA. NTA per share upon liquidation, determines theoretic money receivable to a shareholder. Formula for foe NTAB = Assets - Intangible Assets – Liabilities Number of shares Myer’s NTAB = 1919116 – 532508 – 983075 524755 = 403533 524755 = 0.77 NTAB has limitations which are dependence on balance sheet and problem with classification of asset ownership by the company. Free Cash Flow Model This measure of performance of finance calculates by subtracting operating cash flow to capital expenditures (Damodaran, 2007).Free cash flow is a vital approach for it allows pursuing of opportunities by a company hence enhancing value of the shareholder. Free cash flow also known as FCF represents company’s cash generated after money outlay required for maintenance and expansion of the base of the asset. Formula for FCF model is FCF = (Earnings after tax + Depreciation) – Investment outlay + Net change in working capital Investment outlay can be referred to as investment funds that are a must for a particular project. This is prepared for future expansion. Net change in working capital is the difference of current liabilities from current assets. Using financial results of FY 2015, Free Cash Flow model can be done as;- (73594 + 68947) – 77387 + (467697-587680) = (42596) Recommendation Analysis of the prices of the shares led to valuation using different methods. There is CAPM, NTAB, FCF and DDM models. The beta for Myer is 1.80 which is very low. This may mean not all risks are caught by beta and may be accounted for somewhere else. This means stocks with lower beta have higher returns for fewer years’ stock returns. The beta is not statistically very different from the assumption of market premium. The value from calculation 0.13 is lower than the value of the shares therefore the shares are overvalued. Using DDM model, the obtained value is higher than the share price hence giving a point that the share prices are overstated. The shares are good for investment because there is less risk. The beta is low meaning there is a higher rate of return. Overstatement means the value they get is higher than the tangible value hence the investors have an upper hand when it comes to gain. On the other hand, profits from the shares have gone down meaning, on a shorter investment, there would be less profits from the shares hence short-term investors should see the trend and cease from investing. Conclusion Myer is a great earner when it comes to volatility of shares. It has got low risks and therefore a good company to put an investment on. For a long period, its shares have been stable hence when the returns are on the negative, they never fall that low hence a good company for a risk-aversive investor. REFERENCES Balakrishnan, A. Multifactor Explanations of CAPM: An Evidence for Indian Stock.Pondicherry: Multithink, 2014. Bernstein, Leopold & Wild, John. Analysis of Financial Statements. London: McGraw Hill, 1988. Damodaran, Aswath. Valuation Approaches and Metrics: A Survey of The Theory. New York: Amazon, 2007. Half a Year Financial Report of Myer Holdings Limited for The Year Ending Jan 24th 2015.Melbourne, 2015. Poon, S.H. Forecasting Volatility in Financial Market. Zaheer, Babar, et al. Do Economic Factors Influence Stock Returns? A Firm and Industrial Level Analysis. New York: 2009. “Capital Asset Pricing < http://thisMatter.com > “MYR Announcements.” Myer Holdings Limited, 2015. Web.20 May 2015 “Myer Holdings Limited Fundamental Company Report Including Financial, SWOT, Competitors and Industry Analysts” Market Publishers.Web 20 May 2015 < https://marketpublishers.com > “Myer SWOT < http://AdvisorgateSwot.com > Read More