Financial Investments in Practice Coursework

FINANCIAL
INVESTMENTS IN
PRACTICE COURSEWORK

Table of Contents
Factsheet of the Portfolio.............................................................................................................3
Macroeconomic analysis.............................................................................................................4
Industry Analysis.........................................................................................................................5
Fundamental analysis...................................................................................................................6
Technical analysis........................................................................................................................9
Short discussion over current yield curve while adding a bond to equity portfolio..................11
Portfolio formation....................................................................................................................13
REFERENCES..............................................................................................................................16
APPENDICES...............................................................................................................................18
Appendix A: Royal Mail PLC: Discounted Free Cash Flow Spreadsheet................................18
Appendix B: Sainsbury’s Plc Discounted Free Cash Flow Spreadsheet...................................20
Appendix C: BT Group Plc Discounted Free Cash Flow Spreadsheet.....................................22
APPENDIX – D: Price Multiples Model Spreadsheet..............................................................24
Appendix E: Portfolio Optimisation Spreadsheet......................................................................25
Appendix F: Portfolio Evaluation Spreadsheet.........................................................................29

Factsheet of the Portfolio

Macroeconomic analysis
To study the economy as a whole, the macroeconomics as a branch of economic helps
investors in doing so. Furthermore, there are several economic indicators which can be defined
as a piece of economic data that allows an investor to analyze and interpret the present and future
possibilities of investments. For evaluating UK economy’s health and suitability for making
future investments, the following economic indicators are necessarily required to be analyzed.
Consumer Price Index: This economic indicator facilitates measurement of aggregate price level
existing within an economy by taking into account a bundle of goods and services that are
commonly bought or consumed (Madhavi, 2020). Through this indicator or economic measure,
the changes taking place within the purchasing power of economy’s currency can be determined.
The UK’s CPI has rose by 5.5% in the last 12 months ending at January 2022 which indicates the
rise in the price level of goods and services consumed by citizens such as house, food, medical,
transportation, etc.
Gross domestic product: GDP of any economy is considered as the most important indicator of
the overall economic health and performance during the past years. Accordingly, the economy of
UK has $3.44 trillion GDP for the year 2021 which results in gaining 5th rank across the
economies of the world in terms of GDP where the growth in it as compared to previous year
was identified as 6.76%. The positive growth rate of UK GDP indicates that the economic health
and performance of UK has been improving as compared to the health and performance in
previous year which was -9.85 in terms of GDP growth rate.
Unemployment figure: There is an increase in the rate of unemployment within the economy of
UK from 4.6% in the year 2020 to 4.9% in the year 2021. The rising unemployment in an
economy may results in homelessness, poverty, debt and housing stress for the citizens
(Yankovyi and et.al., 2021). Accordingly, there must be an impact over the viewpoint of
investors with regard to making additional investments within different sectors of the economy
and companies therein. The reason behind such resistant from investment is that the rising
unemployment leads to reduction in production of products and services by businesses.

Industry Analysis
Figure 1: Relative equity performance of UK sector across business cycles
For the creation of portfolio, three stocks have been selected from different sectors of the
economy of UK which involves Industrials (communication services), consumer staples and
information technology (telecommunications) and accordingly the chosen stocks are Royal Mail
Plc, Sainsbury’s and BT Group Plc respectively. The above figure showing the relative equity
performance of UK sector across business cycles shows positive growth aspects for the chosen
stock in the nearer future which can be explained for each and every stock in the following
manner.
Industrials sector is in the early business cycle where the stocks are considered to be quite
sensitive in terms of outperforming as compared to other defensive stocks that are
underperforming. There were easy monetary policies for such sectors which creates a healthy
environment for rapid growth and expansion in profit margins (Finagina and et.al., 2021). The
average total returns from this sector is expected to be more than 20% per annum. Furthermore,
the stock that is, RMG is belonging from sub sector communication services which is in the mid
business cycle where the motive behind choosing such stocks is of managing drawdown risk to

enhance risk – adjusted returns. The stocks belonging from this stage shows moderate growth for
long duration due to healthy profitability. The expectation of investors for this sector is quite
neutral where they are anticipating steady growth rates in the long run.
Consumer Staple sector is in the late business cycle which has the characteristics such as
inflation resisting and defensive sector and the motive behind selecting this stock is that such
stocks are supposed to perform better as compared to other cyclical stocks performing below the
expectations. The investors could expect to reap maximum benefits from this sector as the
economic activity has reaches its peak because of consistent positive growth. Furthermore,
within this phase of business cycle, the consumer sector is considered to be the best of all. The
growth of this sector in terms of future earnings is anticipated at 8.9% as against the forecasted
economic growth rate of UK that is, 6.5% for the next year.
The last company that is, BT Group plc has been selected from information technology
sector where the sub sector of the company is telecommunications. The IT sector is in the early
phase of business cycle which is also an economically sensitive sector in terms of performing
much better when other defensive stocks are tend to perform below expectation (Karpenko and
Vareshchenko, 2019). The companies within these sectors are recovering from recession phase
and this rapid growth in their profitability are expected for the upcoming future. From last many
years, there were 10% per year growth in earnings of the companies of this sector alongside 16%
per year growth in revenues. Accordingly, the next year growth of this sector in terms of
earnings is expected by 26% as compared to overall economic growth rate of just 6.5%.
Fundamental analysis
Royal Mail
Brief description of company:
Royal Main Group Plc is a British Multinational Company that provides postal and courier
service to its customer. The company was established or founded in the year 1516 as a
governmental department and also listed in London Stock Exchange. GLS group which was an
international logistic company are subsidiary of Royal Mail Group. The net revenue earned by
company in the year 2021 is £12638 million. The total number of employee are working with
the organization as per 2021 report is 158592 (Tushar and Imam, 2020).