Scenario

You have recently started an internship position with Griffith Best Equity Management (GEM), a large asset management company with A$750 million Assets Under Management located in Darwin CBD. The company's core investment focuses on domestic share market, however, investments in share markets have provided lower than expected returns in the recent years.

GEM's Chief Investment Officer (CIO) has assigned you to perform an investment appraisal on a single company listed on the ASX300 and provide recommendation if the company analyzed should be included as part of GEM's investment.

Your personal values and experiences are important, you should base your response on the evidence provided in these tasks along with your knowledge gained in the course. It is important that you provide clear evidence of your ability to apply your knowledge of finance as learned in the course to the task. The CIO has requested that your analysis must be up-to-date analysis with at least 3 years of data. Price data should include data to the most recent period.

Your report must address the following issues,:

1. A brief description of the company analyzed
2. Analysis of company's share price using
   1. the Dividend Discount Model (1-stage and 2-stage). You will determine if the share price is priced fairly or over/under-valued.
   2. News/Announcement effect on company's share price. You will investigate the speed of share price adjustment to these announcements usinggraphs. You will discuss the share performance over the last 3 years, showing the major events (announcements) in the life of the company and discuss how these events (announcements) have impacted the share price. One of the events discussed should be from 2024.
   3. On the same chart, present the performance of the major competitor and the market for comparison.

Your current internship position is under 3 months' probation period. Upon completing the task on hand, your department secretary will arrange a meeting with CIO to discuss whether you have passed the probation period and be promoted to a Junior Corporate Finance Analyst.

Task: Evaluate stock price, and estimate the impact of an important announcement on its stock prices(15 marks)

1. Brief description of the company (1 mark)
2. Evaluate stock price, and estimate the impact of an important announcement on its stock prices

1. Stock beta: Download 3 years of weekly stock returns and ASX300 market index returns ending August 31 (this is the date you collect data) from Yahoo Finance and estimate the stock beta. Does the estimate of stock beta make sense to you? (The normal range of beta is from 0.5 to 3.) Provide reasoning, why or why not? If not, you have to use the stock beta from Yahoo Finance for the later parts. (3 marks)

1. Estimate the Cost of equity, using the CAPM return. Assume the market risk premium, Rm-Rf=6%, and use the current 10-year Government bond yield for the risk-free rate. (1 marks)
2. DPS is the total annual dividend per share paid for the financial year. Based on the previous 5-year pattern of DPS payments, estimate the intrinsic values using 1-stage models (the constant dividend growth model), and the 2-stage non-constant dividend growth model. Please use the 10-year Government bond yield as the Dividend growth rate in the equilibrium stage. You need to choose which model is the most appropriate one to use, and compare the intrinsic value versus the share price as of today ('current price').Would you recommend to buy or sell the shares today? Calculate share price by adjusting your beta +-10% of estimated beta values in part (a).

Note: In stock valuation your decisions are based on the estimates of variables and if you make an error in these estimates your decisions can be wrong resulting in significant losses. By considering a range of these estimates you test robustness of your results and as such see how your decisions stack up in case your estimates are incorrect by up to 10%. This is a simple example there are other ways for testing robustness of results statistically.

1. marks)
   1. You will study an announcement in 2024 from this company from ASX 300firms (https://www.asx300list.com/). The announcement can be a new product, a scandal, an earnings announcement, a change in strategy, etc. What is your expectation of the market reaction to the announcement, good or bad news? (1 marks)

Cumulative Holding period returns = [(1+r₁)(1+r₂) (1+r₃)...( 1+r_t)]-1

Note: The holding period return is NOT the usual weekly return you calculated

Choice of Company - You will select a company.

NOTE:

• If Bloomberg is not available, you may usehttps://au.finance.yahoo.com/ to download all historical stock price data required.
• All submissions need to be clearly structured and calculations need to be clearly laid out.
• Dates given are indicative. Use most recent data available at the time of collection of data for your assignment.