Financial Analysis of BAE Systems Plc, Cadbury Schweppes Plc, Pearson Plc, Standard Chartered plc - Case Study Example

BAE Systems Plc. Position in the Industry: BAE Systems is the largest defence contractor in Europe. Its Mosquito and Spitfire brands are market leaders in fighter planes. On top of that it is the leading supplier of a foreign base in the United States. With such a comprehensive array of defence products that range from aircraft to avionics and missiles to navigation systems, BAE Systems is set to dominate the European market for the foreseeable future. It had created a niche for itself with such models as the Harrier, Tornado, Hawk and the state-of-the-art Eurofighter Typhoon. So, the company has had an impressive track record in terms of market share retention, which should be a persuasive argument for purchasing its stocks. There were a few months of uncertainty, when BAE acquired Alvis in 2004. But the financial results of the last two years would suggest that the merger had been a success. Financial indicators: The sales revenue for the year 2006 is $24,150 millions, which is a growth of 27.4%. Its net income during the same period is a whopping $3,209 millions leading to a net income growth for the year of 236%. With a work force that is nearly 80,000 strong - one that is growing at a rate of 6.8% each year, BAE Systems Plc. should be on top of the list for potential investors. The numbers for the year 2006 mentioned above follow a gradual but positive growth in the precedent years. Taking a long term view of the financials does not deviate from this impression. From the days of Royal Ordnance Plc in 1987, the company has come a long way. One of the highpoints in this successful journey is the formation of Airbus SAS in 2001, where BAE Systems holds 20% of shares. The conferring of three Queens Awards for Enterprise must surely be a testimony to the stature of BAE in the defence contractors industry. So the financial fundamentals are very strong indeed. The Management: The company is run by a highly competent group of individuals. Leading at the top is the Chairman Richard L. Olver, whose experience in the industry is second to none. On the executive side Michael J. Turner presides as the Chief Executive Officer and Ian King as the Chief Operations Officer. Both men have useful domain experience and have been star performers over the years. The management team has been quite successful in staying ahead of the competition in recent years. Given that some of the competitors are General Dynamics, Lockheed Martin and Northrop Grumman, makes the achievement so much more impressive. So these reasons make investment in BAE Systems a lucrative opportunity. Operation Efficiency: Several reports have shown the superior processes adopted by BAE Systems that make their operations one of the most efficient in the industry. This efficiency has contributed to the firms profitability, growth and value over the years. Looking Ahead: If performances in the past are superlative, can future results be any different. This is not taken for granted, of course. There are reasons to believe in that supposition. Alongside increased development of the company in its primary markets, the management has released its plans to gain a foothold in markets in Australia, Saudi Arabia, South Africa and Sweden. In the words of its Chairman Dick Olver, "Alongside the development of the Group in these six home markets, BAE Systems will continue to nurture a high performance culture. The delivery of continuous performance improvement remains important to the twin objectives of delivering cost-effective capability to our customers and maximising returns for our shareholders." So, there are sound reasons for investing in BAE Systems Plc. Cadbury Schweppes Plc. Market Position: In various categories of the confectionery markets across the world, Cadbury Schweppes ranks first or second. This is a remarkable achievement given how competitive the food and beverage industry is. Also, their domination is not confined to North America (which by the way is their biggest market), but seen in Latin America and Asia Pacific regions as well. In a way Cadbury Schweppes is a monolith of sorts, which adds certainty to investment returns. Some of its competitors like Nestle and Wrigley still lag behind in terms of size. Being the undisputed market leader with such diverse operations makes the company any investors favourite. Strategic Advantage: Even after retaining the position of market leader, the top management is not complacent on past performances. The company had constantly re-invented its brand image through innovative operational strategies. For example, during the financial year 2003-04, proceeds from the European beverage division was invested in emerging markets elsewhere in the world. The management team is also constantly striving to simplify its structures and increase co-ordination between various branches and implement cost-cutting techniques. So Cadbury Schweppes is way ahead of its competition in these areas, which should persuade investors to back this company. Impressive growth-rate: The share-price of Cadbury Schweppes had increased nearly 63% in the last 3 years, which is a remarkable figure in a competitive industry. On top of that their overall revenue has been growing at an average rate of 3% per year. Free Cash Flow is also a healthy 450 million pounds. Over time there has been growth in margins as well. All these trends augur well for any investment in the company. Other positive trends: In the Confectionery market, the company had managed to achieve the fastest rate of organic growth. For instance, between 2003 and 2005 is 60 points, which is a clear 20 point lead over its closest competitor Wrigley. The Cadbury Schweppes management is constantly looking for opportunities in the confectionery market. It has plans to increase globally co-ordinated innovation and break-out innovation. Plans have also been drawn to capture a larger share of smaller markets by catering to local preferences. What lies ahead? The company is very well placed for further market consolidation. Add to it a greater synergy potential, and we have a company that is strong in its fundamentals. These strategic advantages are backed by sound financials as well. For example, a cash flow margin of 50% and a total asset worth of $5 billions, Cadbury Schweppes shares must be very lucrative for investors. Hilton Group Plc Industry position: With more than 2,800 hotels and 490,000 rooms across the globe, the Hilton Hotels Corporation is the undisputed leader in the hospitality industry. It also boasts of a workforce that is 150,000 strong. The company owns, runs and lets out to franchisees a hospitality portfolio of the most well known brands - including that of Conrad, Doubletree and Hampton Inn. A unique selling proposition: Hilton Hotels Business Travel Programs are some of the most innovative programs ever conceived for catering to the needs of travelling business executives. Towers Concierge Class is a result of this innovation, which offers "separate check-in; complimentary Continental breakfast and evening hors doeuvres; and in-room fax machines" for its customers. The teaming up with American Express in 1995 to offer its customers a no-fee, co-branded credit card facility is a one-of-its-kind feature in the industry. So these factors should an investors decision in the companys favour. Impressive financial results: The results for the year 2006 are an invitation for further investments. The total Revenue for the group rose from $4,437 million in 2005 to a whopping $8,162 millions the subsequent year. This is an increase of 84%. Such growth figures are not usually seen in the industry. It just goes to prove how the company is head and shoulders ahead of its competition when it comes to performance. During the same period, its operating income rose from 805 million dollars to 1,274 dollars, again an increase of nearly 55%. But the result that most investors will look for is the income per share. In this regard the ratio is 1.39 - which is a handy dividend indeed. So with such strong financial performance in the recent past and a likely trend to follow, Hilton Hotels shares are some of the most sought after in the London Stock Exchange. The Management Team and Employee relations: The company boasts of some of the best qualified veterans of the industry at the helm. The corporate culture within the business entity is also very advanced, especially the openness with which new team members are welcome. For example, in their own words the company "empowers our people, future team members will be recognized for their contributions and have the opportunity to grow their careers with the Hilton Family." The company is always striving to hire personnel from diverse ethnic and cultural backgrounds making work an enriching and highly rewarding experience. So this is another reason to invest in Hilton Hotels Plc. Strategic Branding: It is not just that the brands in the Hilton family are popular and well-respected; they represent market leadership in their respective segments of the industry, irrespective of whether in upscale, mid-priced, extended-stay or vacation ownership segments. With a wide variety of brands, it offers great range of choice for its customers, and also contributed significantly to the bottom-line. This is another significant factor to consider for all investors. Pearson Plc Pearson Plc is a media enterprise of notable repute. In their own words, their business goals are to "to educate, entertain and inform." And looking at the empirical evidence the company had certainly met its business goals. Any analysis of financial prospects without consideration to intangible values such as business goals is bound to be inaccurate. Hence the companys stated objectives along with its past accomplishments make it a real winner in the stock market. Financial performance: A glance at the companys financial performance for the last five years indicates a steady growth. The operating profit had risen from 4,019 million pounds in 2003 to 4,423 million pounds in 2006. Pearson Education, which is one of the top brands, had by itself contributed 383 million pounds. These figures translate well for the shareholders. For example, to match the growth in operating profit, the earnings per share had risen from 30.3 pounds to 40.2 pounds. This is all the more impressive when seen in the light of the dividends per share, which are a healthy 20-30 pounds per share annually. So, financial analysis shows that the numbers are very favourable to investors. The Road Ahead: Pearson Plc sold of Government Solutions to Veritas Capital in December of 2006 in preferred stock. With this structural realignment, the company had moved its focus on emerging opportunities in the field of education and entertainment. The management had also announced that it will inject 100 million pounds from the proceeds of the above sale into its UK Group Pension plan for the year 2007. So investors who are retired and looking for a safe and secure return on investment during their twilight years will benefit greatly by holding these shares. On top of that the board of directors has proposed a significant increase in dividend of 8.5%. This follows a trend of 15 years where the dividend dispersed had adequately compensated for the devaluation induced by inflation. Strategic advantage: Since Pearson had set itself to disseminate education and information in the broadest sense of the word, there is a lot of scope for market expansion and horizontal growth. By a mix of organic investment and acquisitions the company has built each of its businesses in a remarkable fashion. The fact that most of its operations are integrated, lends itself to efficiency in terms of "shared assets brands, processes, facilities, technology and central services." In addition to this, the company makes provisions for the fulfilment of its long term vision by investing in areas of content development, technology improvement, finding new market opportunities and overall efficiency. The Management Team: Pearson Plc. is led by proven experts in their respective fields. Glen Moreno is the Chairman, who brings with him his valuable experiences with Fidelity International and Man Group plc. Chief Executive Marjorie Scardino puts too good use her expertise in matters of law. Having had previous publishing experience from The Economist Group, she had transformed the company in the ten years since she took over this top position. So, stock holders can rest assured that their investments are in safe hands. Standard Chartered plc. Financials: The earnings per share value is a key indicator of financial performance. As the above chart shows, it had risen from $82 in 1998 to $180 in year 2006. Although the figures are for the American market, the picture in the UK market is not much different. The annual income levels for Standard Chartered have been growing steadily. From $4,000 in 1998 it had more than doubled in 9 years since. Another number of interests for investors would be dividend per share. In this, Standard Chartered had garnered a growth of nearly 100% in a span of 9 years. Recognition in the Industry: Standard Chartered PLC has the distinction of being listed on both the London Stock Exchange and the Hong Kong Stock Exchange. In both these exchanges it continues to find a place among the top 25 (among FTSE-100) each year. With a history that runs back to 150 years, its reputation in banking and allied services is uncontested. Its recent endeavour to gain footholds in emerging markets in "the Asia Pacific Region, South Asia, the Middle East, Africa, and the Americas" will make its already extensive network of branches across the globe, even bigger. The organization also boasts of an employee base of 60,000 recruited from across all cultural and ethnic backgrounds. According to a company statement, "this diversity lies at the heart of the Banks values and supports the Banks growth as the world increasingly becomes one market." Strategy for the Future: With its new strategic alliances and acquisitions (most notably of American Express Bank) the company is set to see organic growth in the near and far future. Striking a balance between its diverse portfolios of financial businesses across the world, the company is well positioned to rise to the position of market leader in all the markets where it is making entry. In the words of its top management, "Standard Chartered derives over 90 per cent of profits from Asia, Africa and the Middle East. Serving both Consumer and Wholesale Banking customers worldwide, the Bank combines deep local knowledge with global capability to offer a wide range of innovative products and services as well as award-winning solutions. Trusted across its network for its standard of governance and corporate responsibility, Standard Chartered takes a long term view of the consequences of its actions to ensure that the Bank builds a sustainable business through social inclusion, environmental protection and good governance." The company always places the interests of stakeholders above their own. This is reflected in its "approach towards managing its people, exceeding expectations of its customers, making a difference in communities and working with regulators." Considering all the above reasons, we can conclude that investing in Standard Chartered is a prudent decision. References: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Read More