Master's in Business Finance (pdf)

Running head: FINANCE FOR BUSINESS-MASTERS
Finance for Business
Name of the Student
Name of the University
Authors Note
Couse ID

1FINANCE FOR BUSINESS-MASTERS
Table of Contents
Introduction:...............................................................................................................................2
Description of the company:......................................................................................................3
Ownership governance structure:...............................................................................................4
Main substantial shareholders:...............................................................................................4
Main people involved in firm Governance:...........................................................................5
Fundamental Calculations of Ratios:.........................................................................................6
Short Term Solvency Ratios:.................................................................................................6
Long Term Solvency Ratios:.................................................................................................6
Asset Utilisation Ratios:.........................................................................................................7
Profitability Ratios:................................................................................................................7
Market Value Ratios:.............................................................................................................7
Graphical Description of Share Price Results:...........................................................................8
Share Price Movement Analysis:...........................................................................................8
Comparative Analysis of the Share Price Movement against the All Ords Index:....................8
Factors influencing the stock price movement of the company:..............................................10
Calculations of beta values and required rate of return:......................................................11
Calculations of Beta:................................................................................................................11
Calculations of required rate of return:....................................................................................11
Conservative for Investment:...............................................................................................11
WACC of the Company:..........................................................................................................12

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Calculations of the WACC for the Company:.....................................................................12
Implications of higher WACC:............................................................................................12
Debt Ratio:...............................................................................................................................13
Dividend policy:.......................................................................................................................14
Letter of Recommendations:....................................................................................................14
Conclusion:..............................................................................................................................15
References................................................................................................................................16

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Introduction:
The business report is prepared to provide the probable investors with the detailed
understanding of the company financial environment. The business report would be based on
the Abacus Property Group to investigate and analyse the financial position of the company.
The basic objective of the report is to simplify the portfolio of the investors and provide them
with the appropriate recommendations regarding the viability of making investment in the
company.
The report would be providing the descriptive understanding of the company, the
market in which it operates and the major products in which it deals. Furthermore, an
identification of the company corporate ownership structure along with main people that are
involved in the governance of the organization would be provided. The report would further
accompany the computation of significant ratios to understand the overall financial health of
the Abacus Group Property.
A graphical plot would be developed to understand the movement in the share price of
the company against the all ordinary index. Further reference would also be made towards the
major factors that create an influence in the share price of the company. For any making any
investment investors usually prefers the required rate of return of an entity. Likewise, the
report would also provide the understanding of the WACC and calculate the required rate of
return for the Abacus Property Group by employing the tools of weighted average cost of
capital.
A look into the dividend and debt structure of the Abacus Property Group would also
be made to understand the viability of the making investment. Finally the report would be
following the letter of recommendations for the potential investors regarding the prospects of
making investment in the Abacus Group Property.

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Description of the company:
Abacus Property Group is regarded as one of the diversified group of property. The
company specialises in making an investment in the core plus property opportunities in
Australia (Abacus Property Group 2018). Abacus Property Group was established in the year
1996 and the company became listed in the Australian Stock Exchange during the year 2002
and the company is included in the S&P/ASX 200 index.
Abacus is the stable entity that holds a combination of securities in three companies.
This includes the Abacus Holdings Limited, Abacus Project Limited and the Abacus Storage
Operations limited. Apart from this company also has three trusts and they are Abacus Trust,
Abacus Income Trust and Abacus Storage Property Trust (Abacus Property Group 2018).
Investors of the company usually acquire the stapled securities that consists of the securities
of the listed six companies.
The strategy of the Abacus is to invest is core plus properties. The company takes the
advantage of its value adding opportunities so that it can generate long term capital returns
and increase the security holder’s value. The objective of the company investment is to offers
its investors with the reliable and increasing amount of returns (Abacus Property Group
2018). The company looks in to the property assets which is capable of providing growth to
the rental income and value of assets.
The company has the successful track record in acquiring the property that is based on
the assets and manages its assets actively in order to improve the income and the capital
growth. Abacus Property Group core existence and the joint venture has resulted in the
growth of several sophisticated global third party capital providers (Abacus Property Group
2018). Abacus Property Group looks for those assets and projects that are typically eastern
seaboard that are mispriced by the market and has the potential for capital growth. Abacus

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Property Group participates in wide range of projects by combining its capital and property
expertise with the regional and sector specific experts to grow its business. By the year ended
June 2017 the company reported a total of $448 million in the form of development and
financing projects in its balance sheet.
Ownership governance structure:
Main substantial shareholders:
The main substantial security holders for the Abacus Property Group is stated below
Name of the Security Holders Number of Securities Percentage of Securities
held
Calculator Australia Pty
Limited
252,981,605 43.95%
Investor Mutual Limited 29,523,171 5.13%
As evident from the above stated tabular representation the main substantial
shareholder for the company stood Calculator Australia Pty Limited as the company held
252,981,605 of the total securities which comprised of 43.95% of the total issued securities
(Abacus Property Group 2018). Apart from that Investor Mutual Limited held 29,523,171 of
the securities that comprised of 5.13% of the total shareholdings for the Abacus Group
Property. Based on the substantial shareholdings it can be stated that the company cannot be
classified as family company.
Apart from the substantial shareholders there were other major shareholder of the
Abacus Property Group which is stated below’
Name of the Holders Number of Securities Percentage of securities

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issued
CITICORP NOMINEES
PTY LIMITED
190,498,670 33.097%
HSBC CUSTODY
NOMINEES
96,089,134 16.695%
J P MORGAN NOMINEES
AUSTRALIA
58,054,301 10.086%
CALCULATOR
AUSTRALIA PTY
LIMITED
57,750,613 10.034%
CALCULATOR
AUSTRALIA PTY
LIMITED
45,547,846 7.914%
Main people involved in firm Governance:
The main people that are involved in the governing of the Abacus Property Group is
stated below;
Name Position held Securities held
J. Thame Chairman 84,590
W. Bartlett Non-executive Directors 33,125
M. Irving Non-executive Directors 52,343
M. Salkinder Non-executive Directors Nil
P. Spira Non-executive Directors Nil
F. Wolf Managing Director 3,606,382

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R. Baulderstone Chief Financial Officer Nil
C. Laird Director Property
Development
Nil
P. Strain Director Property
Investments
Nil
As it is stated from the above stated it can be stated that none of the individuals that
are involved in the governance of the Abacus Property Group held more than 5% of the
issued securities. Based on the classifications it can be stated that there is not such existence
of family members in the governance of the company. Abacus Property Group is entirely a
non-family company.
Fundamental Calculations of Ratios:
Short Term Solvency Ratios:
Particulars` 2017 2016
$000 $000
Current Assets A 168725 477861
Current Liabilities B 40984 208479
Inventory C 8474 9845
Prepayments & Other Assets D 0 0
Cash & Cash equivalents E 56288 43792
Current Ratio F=A/B 4.12 2.29
Quick Ratio G=(A-C-D)/B 3.91 2.24
Cash Ratio H=E/B 1.37 0.21
Long Term Solvency Ratios:
Particulars` 2017 2016
$000 $000
Total Assets A 2436670 2450290
Total Equity B 1814621 1559277
Total Liabilities C 622049 891013

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Debt-to-Equity Ratio D=C/B 0.34 0.57
Debt Ratio E=C/A 0.26 0.36
Equity Ratio F=B/A 0.74 0.64
Asset Utilisation Ratios:
Particulars` 2017 2016
$000 $000
Total Assets A 2436670 2450290
Fixed Assets B 2267945 1972429
Revenue C 251601 263726
Trade & Other Receivables D 18457 8851
Total Asset Turnover Ratio E=C/A 0.10 0.11
Fixed Asset Turnover Ratio F=C/B 0.11 0.13
Receivables Turnover Ratio G=C/D 0.07 0.03
Profitability Ratios:
Particulars` 2017 2016
$000 $000
Profit for the year A 292088 190092
Revenue B 251601 263726
Total Assets C 2436670 2450290
Total Equity D 1814621 1559277
Net Profit Margin E= A/B 116.09% 72.08%
Return on Equity (ROE) F=A/D 16.10% 12.19%
Return on Assets G=A/C 11.99% 7.76%
Market Value Ratios:
Particulars` 2017 2016
Earnings per Share A 0.499 0.335
Dividend per Share B 0.0875 0.0875
Market Value per Share C 3.11 3.2
Dividend Pay-out Ratio D=B/A 17.53% 26.11%

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Dividend Yield Rate E=B/C 2.81% 2.76%
Price-to-Earnings Ratio F=C/A 6.23 9.46
Graphical Description of Share Price Results:
Share Price Movement Analysis:
12/1/2015
1/1/2016
2/1/2016
3/1/2016
4/1/2016
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Stock Price Movement
Abacus Property All Ord Index
Figure 1: Figure Showing Share Price Movement of Abacus Property
(Source: As Created by Author)
Comparative Analysis of the Share Price Movement against the All Ords Index:
The graphical representation obtained suggest that the share price of the company is
moderately volatile. Abacus Property Group a reits based company in Australia over the last
few months has received a large number of attentions from the investors relating to the
substantial share price movement on the ASX (Au.finance.yahoo.com 2018). The share
prices of the company have witnessed a high of A$3.8 at one certain point of time while it
also dropped significantly to as low as A$ 3.41. Such a high degree of volatility provides the
investors with the opportunity of making an investment in the stocks of the company and
potentially purchase the stocks at an artificially lower price.

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As evident from the stock price movement of the company during the opening quarter
of January 2016 with a negative price movement of -3.65% against the negatively standing
all ordinary index of -2.15 (Editorial 2018). However, Abacus Property Group ended the first
quarter on a positive note and reported a positive movement in its stock price of 6.38%
against the lowly all ordinary index of 3.19%. Similarly, in the following months of May the
stock price movement of Abacus Property Group reflected a negative movement with the
stock price declining negatively to stand at -3.96.
Moving towards the next quarter of September the company reported a higher
volatility in its stock price as the stock continued to trade negatively throughout the
penultimate quarter of 2016 (Finance.yahoo.com 2018). Though in the opening final quarter
of 2016 reflected a positive movement in the share price but Abacus Property Group ended
the final quarter reporting a negative stock price movement of -6.95% being the highest dip in
the stock price through the year.
Moving fast forward to 2017 the share price of Abacus Property Group have
relatively reflected a less volatility and the stock price stood positively in the first month of
opening quarter. The stock price of Abacus Property Group stood positively at 10.32%
against the all ordinary index of 1.52%. Though the stock price reflects a decline in the later
months but did not reported a negative movement in its stock price (Hatcher 2018). The stock
price in the second quarter of June stood took further dive and closed negatively at -4.01 in
June with previous month low of -7.43%.
The stock price in the penultimate quarter gained significantly to stand at 14.76 in the
month of July which is highest in the last two financial years but took a nose dive to end in
the final quarter of 2017 (Zabarankin, Pavlikov and Uryasev 2014). Abacus Property Group

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final quarter stock price stood negatively at 12.14% against the negatively standing all
ordinary index of -0.99.
The overall analysis of the stock price movement suggest that the company has
reported a moderately volatile movement in its stock price over the last two years. Except on
certain occasions the stock price for the Abacus Property Group stood positively and higher
than the all ordinary index (Barberies et al. 2015). The share of the Abacus Property Group is
currently undervalued and as the potential investors it might be a great time for increasing the
holdings of the stock.
Factors influencing the stock price movement of the company:
The major factor that create an influence in the share price movement of the company
is the changes in the forecast of the analyst (Evstigneev et al. 2015). The analyst forecast
suggest that the Abacus Property Group short term trend is upward rising and with the nearest
possible share price target of $3 (Mayes 2018). The share price of Abacus Property Group is
currently trending at $2.89 and given the trend stays reserved from this point forward the
future target price could be around $2.86.
The industry wide factors include the high rise demand for the properties in the
market. In the latest report of the Abacus Property Group suggest that the company has
experienced a sizeable tailwinds resulting in higher double digit earnings growth for the
company to stand at 53.37% (Mock 2018). The market analyst prospects have stated that in
the coming years they seem to be pessimistic about the earnings of the company since it has
declined to -33.30% (Merkl et al. 2016). The negative earnings of the company has
significantly created an impact on the share price of the company.
Another significant factors that creates an influence on the share price of the Abacus
Property Group is the impact is the competitors (Simply Wall St 2018). The company faces

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intense competitions from the Mirvac group, Charter Hall Group and GPT Group. With the
company reporting 11.31% which is line with the industry average over the past one year the
company shown the ability of generating better amounts of earnings to return the amount of
equity which it has raised from the its investors (Martin and Roychowdhury 2015). Based on
the above stated analysis it can be stated that the company is one of the better stocks for the
investors to make an investment. The share prices of the company has been currently low and
it is good buy for the investors.
Calculations of beta values and required rate of return:
Calculations of Beta:
The calculated beta for the Abacus Property Group stands 0.59.
Calculations of required rate of return:
Particulars Amount
Beta of the company A 0.59
Risk Free Rate B 4%
Market Risk Premium C 6%
Required Rate of Return D=B+[AxC] 7.54%
The required rate of return for the Abacus Property Group stood 7.54%.
Conservative for Investment:
The rationale for making a conservative investment in the shares of the Abacus
Property Group is because of the share price which is below the future cash flow value and
the moderate discount of greater than 20% (Eccles and Serafeim 2014). The Abacus Property
Group is regarded as the good value in terms of the earnings in comparison to the Australian
industry market (Murphy 2018). Though price expected growth for the company is not

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regarded good based on the anticipated growth but Abacus Property Group over the years has
delivered more than 20% of the year on year earnings rise in the last five years.
The company though does not makes a sufficient use of the shareholders’ funds as the
return on equity of the company stands less 20%. The company has effectively used its assets
than other Australian REIT’s industry average in respect of the return on equity (Zeff 2016).
The Abacus Property Group has significant enhanced its capital last year based on the last
three years return on capital employed. The company is better placed to meets is short term
commitments with company has sufficient amount of cash holdings and other short term
assets to meet its liabilities (Hermason, Edwards and Maher 2016). The company has very
low level of unsold amount of assets. Furthermore, the rationale for making an investment in
the shares of the Abacus Property Group is its dividend which is beyond the low risk saving
rate of 2.48%.
WACC of the Company:
Calculations of the WACC for the Company:
Particulars Amount
Weightag
e Cost
Return
Rate
Tax
Rate WACC
Total Long Term Debt 549184 23.23% 35826 6.52% 30.00% 1.06%
Total Equity 1814621 76.77% 7.54% 5.79%
TOTAL 2363805 100% 6.85%
As evident from the above stated table the WACC for the company stands 6.85%.
Implications of higher WACC:
The WACC is regarded as the most important tool for an organization since an
increase in the beta results in increase in the amount of the return on equity (Haffar and
Searcy 2018). A rise in the WACC leads to the decline in the market value of the company
and ultimately increases the risks (Weirich, Pearson and Churyk 2017). A higher amount of

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weighed average cost of capital holds higher implications on the assessment of the
management prospects of investment. This serves as an alarm for the investors that there is a
higher amount of risk in the organization functions.
A large number of the public listed companies possess numerous sources of funds
there WACC attempts to create a balance among the relative costs and different sources in
order to produce singular cost of capital figures (Peng et al. 2017). The WACC also forms an
important considerations in the loan valuations of the company and its functional
assessments. Investors generally express their concern if the WACC of the company is on the
higher side (Adams 2017). The company may be lose its value and the investors may move
towards somewhere else to gain efficient return in the market.
Debt Ratio:
The debt ratio for the company stands 0.36 during the year 2016 while in the later
year of 2017 the debt ratio for the company has declined (Jefrey 2018). The company has
been efficiently managing its debts structure and is in the direction of maintaining adequate
capital structure. The Abacus Property Group level of debt in respect of its net worth has
been reduced over the period of five years. The debt of the company is adequately covered by
its operating cash flow. Therefore, the Abacus Property Group level of debt in compare to the
net worth appears to be satisfactory.
Moving towards the capital gearing of the company the company has issued stapled
securities to adjust its gearing ratio (Crowther 2016). The balance sheet of the company has
remained strong with the gearing ratio remaining conservative at 20.5%.
Dividend policy:
The dividends declared by the company for the year 2017 stands 9 cents per share.
The dividend policy of the company includes creating a liability for the dividend and the

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same is recognized by the company in the balance sheet given the dividends are distributed or
recommended publicly before the balance date.
Letter of Recommendations:
To Client Company
From Financial Consultative Group
Dear Sir,
Our letter of recommendations is based on providing you valuable advice regarding
your diversified portfolio. The share price of the Abacus Property Group is currently trading
at below the future cash flow value with a moderate discount of greater than 20%. The
company has ROE of 11.31% which is line with the industry average over the past five years.
A recommendations can be provided that though the share prices of the company has been
moderately volatile over the period of last few months but the company is good value based
on earnings in comparison to its peers in the Australian market. Over the period of five years
the company has delivered growth in its earnings.
Abacus Property Group makes an effective use of its assets than the other AU REIT’s
industry average based on the previous year’s return on assets. The company has significantly
improved its capital over the last three years furthermore, it has been successful in meetings
its short term commitments with better holdings of cash and short term assets. The debt of the
company is well covered by its operating cash flow. Furthermore the company has declared
dividends of 9 cents which is above the low risk savings rate of 2.48%.
On a conclusive note making an investment in the shares of Abacus Property Group is
a viable when the share prices of the company is current trading a lower price. We anticipate
the recommendations provided has helped in serving your purpose.

16FINANCE FOR BUSINESS-MASTERS
Thank You
Conclusion:
Arriving at the conclusion from the above stated analysis it can be stated that the
company has experienced sizeable amount of tailwinds that have resulted the company in
higher double digit earnings growth of 53.37%. The company though does not makes a
sufficient use of the shareholders’ funds as the return on equity of the company stands less
20%. The company has effectively used its assets than other Australian REIT’s industry
average in respect of the return on equity. Investors may find this figures useful in making
their investment in the company.

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References
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http://www.abacusproperty.com.au/about-us [Accessed 19 May 2018].
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[Accessed 19 May 2018].
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(CAPM). In Mathematical Financial Economics (pp. 53-59). Springer, Cham.

18FINANCE FOR BUSINESS-MASTERS
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