An overseas institutional investor has approached your investment advisory firm seeking to invest AUD280 million in one of the big four local bank's ordinary shares. Your Chief Investment Officer has done some preliminary research on the four banks financial returns and current financial position that has helped her to narrow down to two banks. You have been given the assignment to analyse and prepare a report as to which of the two banks ordinary share is better value for investment.
Based on your market research (qualitative and quantitative) on AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED and NATIONAL AUSTRALIA BANK LIMITED, you are required to prepare a report with your recommendation to the Chief Investment Officer, as to which of the companies' ordinary shares is better value for investment. The overseas investor desires high returns and growth and is looking to park the funds for long term i.e. 10 years. In your report, include all the calculations and market information on which your recommendation is based.
Show all your calculations on the annexure. Limit your report between 1,500 to 2,000 words using financial theory and concepts.
For this question may use information provided in the below websites and any other sources you feel will assist you to come up with your recommendation.
Yahoo! Finance https://au.finance.yahoo.com/
Australian Stock Exchange https://www.asx.com.au/
Reuters https://www.reuters.com/finance/markets
National Australian Bank https://www.nab.com.au/about-us/shareholder-centre
ANZ Bank https://www.shareholder.anz.com/
Calculate the following to help you come up with a recommendation as a minimum:
• Calculate the required rate of return on ordinary shares of the above two banks using Capital Asset Pricing Model.
• Calculate ordinary share valuation - Constant dividend growth model.
Find the monthly holding period returns (%) for the period 1 July 2014 to 30 June 2015 for both the banks. The monthly holding period return is the percentage return you would receive if you bought an asset on the first day of the month (opening price) and sold it on the last day of the month (closing price). Graph your results on one graph with returns on the y axis and time on the x axis (Use ‘Close' rather than ‘Adjusted Close' for the selling price and include all dividends).
Guidelines:
Base your calculations on the most recent financial results ending 30 June 2015 where required for the above banks.
Rationale
This report writing will provide an opportunity to apply the concepts in an authentic scenario that you may encounter in the workplace and also:
· be able to demonstrate appropriate communication skills in the context of corporate finance.
· be able to demonstrate specific technical competencies and skills in utilizing quantitative techniques in financial analysis.
· be able to critically evaluate mainstream financial theory and concepts.