Financial Investments in Practice - Desklib

FINANCIAL
INVESTMENTS IN
PRACTICE

Table of Contents.
Factsheet......................................................................................................................................2
Macroeconomic Analysis............................................................................................................3
Industry Analysis.........................................................................................................................4
Fundamental Analysis.................................................................................................................5
Technical analysis........................................................................................................................8
A short discussion for the current yield curve for the UK Government treasury bills..............11
Portfolio formation....................................................................................................................13
Portfolio Evaluation...................................................................................................................13
REFERENCES..............................................................................................................................15
APPENDICES...............................................................................................................................17
Appendix A: Unilever PLC: Discounted Free Cash Flow Spreadsheet....................................17
Appendix B: Shell Plc. Discounted Free Cash Flow Spreadsheet.............................................18
Appendix C: AB Foods Discounted Free Cash Flow Spreadsheet............................................19
APPENDIX – D: Price Multiples Model Spreadsheet..............................................................21
Appendix E: Portfolio Optimisation Spreadsheet......................................................................22
Appendix F: Portfolio Evaluation Spreadsheet.........................................................................26
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Factsheet
Macroeconomic Analysis
Macroeconomic is basically a branch of economic with the help of which investors can
study the economy as a whole. Further, an economic indicator is a piece of economic data with
the help of which an investor can analyse or interpret current as well as future investment
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possibilities. In order to judge the overall health of UK economy, the following economic
indicators need to be analysed:
Consumer Price Index: This is an indicator which is used to measure and analyse the
changes in the level of prices of goods and services over time in reference to population acquires.
The CPI of UK rose by 5.5% in the 12 months to January 2022 which means that prices of the
goods and services consumed by people such as food, transportation, medical, house etc. are
increasing (Kurpayanidi, 2020).
Gross Domestic Product: This is also most significant indicator of economy which help
the investors to analyse health of economy. The GDP of UK economy in the year 2021 is $3.44
trillion with the 5th rank all over world and GDP growth of 7.5%. This indicates that the health of
UK economy is improving as compared to year 2020 where the GDP growth rate of UK is -
9.8%.
Unemployment Figure: The unemployment rate of UK has reached to 4.9% in the year
2021 as compared to 4.6% in the year 2020 (Kurpayanidi, 2020). Such increase in the
unemployment rate may leads to poverty, debt, homelessness and housing stress which
ultimately affect the investors viewpoint to invest in companies. It is because the increase in
unemployment rate will lead to decline in business products and services.
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Industry Analysis
Figure 1: Relative equity performance by sector across business cycles
In the current scenario, there are three stocks that has been selected from different sectors
of the UK economy that is, Consumer staples, Energy and consumer defensive and the chosen
stocks from these sectors are Unilever plc, Shell Plc and Associated British Foods.
From the above figure depicting relative equity performance of different sectors of UK
across the business cycles indicates positive growth prospects in the upcoming future. This can
be seen through consumer staples forming part of late cycle is considered to be the defensive and
inflation-resisting sector of the economy which can be chosen with the motive that it will
perform better as against other cyclical stocks that are supposed to be underperform (Nasir, Rizvi
and Rossi, 2018). The economic activity of this sector has reaches its peaks where the investors
could reap maximum benefits as a result of consistent positive growth of this sector.
Furthermore, consumer sectors are considered to be one of the best sector of this business cycle
phase.
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Furthermore, the earning growth of the sector is expected to grow by 8.9% per year while
the economic growth rate is expected to growth by 6.5% next year. This indicates better future
prospects for the companies forming part of this sector.
The second company that has been chosen for the portfolio investment is Shell plc which is
belonging from the energy sector of UK. Analysts are highly optimistic with regard to the growth
rate of Energy sector, where the expected is of consistent growth in rate of earnings is 8.8% over
the next five years which is also higher than that of the economic growth rate making the
portfolio highly profitable (Hussain, Salia and Karim, 2018). From the above figure 2, it can be
seen that the Energy sector is in the phase of late business cycle where its stocks are considered
to inflation resistant and defensive and accordingly, it is tending to perform better than other
underperforming sectors known as cyclical sector. Also, this sector has reaches its peak where
investors could derive maximum possible returns from this sector along with the growth being
positive for the future period.
The last company in the portfolio is Associated British Foods which is belonging from
Consumer defensive sector of UK economy where the stocks of such companies are in demand
during the contractionary phase of the economy (Top UK Diversified Banks Stocks for Q2 2022
Quarter. 2022). The company offers with such consumer staples which are demanded at the time
when consumers are earning less and thus is known as consumer defensive stocks. The
investment in this sector ensures diversification which is helpful in meeting the sudden
requirements that arises as a result of economic downturn. The sector growth rate of consumer
defensive within UK always remains correlated with the patterns in the rate of economic growth.
Fundamental Analysis
Unilever Plc
Brief description of company:
Unilever is a British multinational operates in consumer goods industry having
headquarter in London, England. They have its operation all over the world and listing on
London Stock Exchange (Bick and Fuchs-Schündeln, 2018). The company provides food,
condiments, ice cream, water and air purifier, beauty, health care etc. products to its target
customers. The company was founded in the year 1929 and currently having revenue of £52.444
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