Comparative Financial Report on Vodafone Plc

Comparative Financial Report on Vodafone Plc

Contents
Contents.................................................................................................................................................2
Introduction...........................................................................................................................................3
Comparison of Companies.....................................................................................................................3
Analysis of Share Price Behaviour......................................................................................................3
Expected Monthly Returns............................................................................................................3
Standard Deviation of Monthly Returns........................................................................................4
Correlation.....................................................................................................................................5
Portfolios with FTSE 100 Index......................................................................................................5
Financial Structure and Cost of Capital..............................................................................................8
Systematic Risk..............................................................................................................................8
Cost of Equity.................................................................................................................................9
Price to Earnings Ratio (PE)..........................................................................................................10
Capital Structure..........................................................................................................................11
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13
Appendices..........................................................................................................................................14
Appendix 1 Statistical Measures......................................................................................................14
Appendix 2 PE Vodafone.................................................................................................................14
Appendix 3 PE BT Group..................................................................................................................14
Appendix 4 PE Telecom Plus............................................................................................................15
Appendix 5 Capital Structure Ratios................................................................................................15

Introduction
This report covers a comparison of telecom companies Vodafone Plc, BT Group and
Telecom Plus Plc. Financial comparative analysis has been conducted by analysing the share
price behaviour, financial structure and cost of capital. Share price behaviour has been
analysed by expected monthly returns, standard deviation, correlation with the index and
forming portfolio combinations with FTSE 100 index. Systematic risk has been assessed by
the help of beta and valuations have analysed by the calculating price to earnings ratio. Debt
to equity ratio has been evaluated to analyse capital structure and CAPM has been used to
find out cost of equity. In the end there is a view given on the expected future performances
of the three stocks and advice for current shareholders to buy or sell stocks.
Comparison of Companies
The comparison of Vodafone Plc with BT Group Plc and Telecom Plus Plc has been
performed on the basis of various parameters. For the purpose of comparison, monthly share
price data for the period of March 2013 to Feb 2018 and financial data from last five annual
reports of the companies have been taken.
Analysis of Share Price Behaviour
Share price of behaviour has been evaluated on the basis of various statistical
measures such as mean, standard deviation and correlation.
Expected Monthly Returns
This measure tells us about the average holding period return of a stock for a month.
This can be used to get an idea about how much an investor can expect to earn from a stock
by holding it for a month. In terms of expected monthly returns Telecom Plus Plc has
outperformed other two companies Expected monthly return of Vodafone Plc is 0.70%. On

the other hand average monthly returns for BT Group Plc and Telecom Plus Plc are 0.19%
and 1.11% respectively (Appendix 1). An investor of Vodafone Plc has not been rewarded in
a same manner as that of Telecom Plus but is more satisfied than the one of BT Group Plc.
Expected monthly return of a stock cannot be the only criteria for stock price analysis. This
parameter has to be analysed in conjunction with other measures.
Standard Deviation of Monthly Returns
This statistical measure is used to analyse the risk associated with an investment. High
returns always come at a cost. Returns of an investment must be evaluated along with the risk
associated with it. Standard deviation of a parameter is equal to square root of variance.
Variance is calculated by sum of squares of differences of returns from expected return.
Standard deviation of monthly return can be used evaluate risk of the holding a stock for a
month (Mullholand & Jones, 2014). Out of three stocks, Telecom Plus Plc is most risky in
terms of standard deviation of monthly returns, while BT Group Plc is least risky among the
three. High risk associated Telecom Plus Plc has been rewarded by high average return.
Standard deviation of monthly returns Vodafone Plc is 0.0591, while that of Telecom Plus
Plc and BT Group are 0.0944 and 0.0572 respectively (Appendix 1). High risk investments
may not always fetch high returns. During periods when fundamentals of a company or
macroeconomic variables are not favourable, there is a high risk of holding a stock. In these
conditions, high risk may result in low returns due to selling pressure in the market.
For analysing risk and return together, it is better that return per unit risk is analysed.
This will help in identifying whether additional risk has rewarded by equivalent amount of
returns. This is done to by dividing expected monthly return by standard deviation. For
Vodafone Plc, this measure comes out to be 0.1188 (Appendix 1). On the other hand, it is
0.0340 for BT Group Plc and 0.1174 for Telecom Plus Plc (Appendix 1). So considering risk