Analysis of Galliford Try plc: Stock Price, Macro-Economic Variables, and Capital Budgeting

Management Finance and
Science
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Module Code: MAN7MFI
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Contents
1. Executive Summary..............................................................................................4
2. Introduction............................................................................................................6
3. Galliford Try plc Analysis.......................................................................................7
3.1 Galliford Try plc stock price analysis..................................................................7
3.1.1 Descriptive statistics of Galliford Try plc’s return based on 1-year historical
prices.....................................................................................................................7
3.1.2 Descriptive statistics of Bovis Homes plc’s return based on 1-year
historical prices......................................................................................................8
3.1.3 Standard deviation as a measure of investor risk........................................8
3.1.4 The relationship between the close share prices of Galliford Try plc and
two macro-economic data sets...........................................................................10
3.1.5 The correlation between the monthly unemployment data and the relevant
close share price of Galliford Try plc and the monthly HPI data and the close
share price for year 2018....................................................................................11
3.1.6 Statistical significance and practical importance of the relationship
between the Galliford Try plc and two macro-economic variables (monthly HPI
and Unemployment data)....................................................................................12
3.2 Analysis of a capital budgeting decision...........................................................14
3.2.1 Selecting an investment project using capital budgeting methods and
analysing the risks of the project.........................................................................14
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3.2.2 Choice of funding for the project................................................................17
4. Conclusion and Recommendation......................................................................19
5. List of References...............................................................................................21
Appendix 1..................................................................................................................24
Appendix 2..................................................................................................................44
Appendix 3..................................................................................................................65
Appendix 4..................................................................................................................65
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1. Executive Summary
This report analyses the share price movement of Galliford Try plc to interpret the
information provided by various descriptive statistics and to identify the relationship
between the stock close price and two macro-economic variables: Unemployment
data and House prices of UK. This report also performs capital budgeting analysis to
choose among four potential projects.
The report calculates the daily return of Galliford Try plc and Bovis Homes plc for
2018. The standard deviation of the daily returns is 2.61% for Galliford Try Plc and
1.74% for Bovis Homes plc. This tells that the volatility of Galliford Try plc is higher.
The report uses the scatter plot to show the correlation between the close share
price of Galliford Try plc and unemployment and house prices monthly data. The
correlation coefficient between close share price of Galliford Try plc and monthly
Unemployment numbers is 0.368 and correlation between close share price of
Galliford Try plc and monthly HPI data is -0.0924. This shows there is low positive
relationship of the stock price with the unemployment data but it has no relationship
with the house prices numbers because of approximately zero correlation coefficient.
The report further found that these relationships do not have any statistical
significance because of high p-values.
The report performs capital budgeting analysis of the potential projects and found
that different investment appraisal methods recommend different projects. The
document recommends project S with the highest NPV of 51.53 as it will maximise
the overall wealth of the shareholders. The report evaluates different funding options
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like debt and equity. It recommends the use of debt funding by Galliford Try plc to
fund this project.
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2. Introduction
This report analyses the share price movement of Galliford Try plc to interpret the
information provided by various descriptive statistics and to identify the relationship
between the stock close price and two macro-economic variables. This report also
performs capital budgeting analysis to choose among four potential projects.
Galliford Try plc is a well-established construction company based in UK. The
company is among the top 250 companies listed on the London Stock Exchange.
The main business operations of the company include house-building, construction
and regeneration. Bovis Homes plc is another company in the same industry that is a
competitor of Galliford Try plc.
The report calculates the daily return of Galliford Try plc and Bovis Homes plc over
2018. It then calculates the descriptive statistics like mean, median, range and
standard deviation. It then analyse the standard deviation of both the stocks to
compare risk to the investors. The report also plots the correlation between Galliford
Try plc and two macro-economic variables and it calculates the correlation coefficient
to study the strength of their relationships.
The report uses different capital budgeting methods like NPV, AAR, IIR and payback
period to choose from four potential projects. It also analyses debt and equity
funding options to recommend the one that will suit Galliford Try plc according to its
capital structure.
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3. Galliford Try plc Analysis
3.1 Galliford Try plc stock price analysis
3.1.1 Descriptive statistics of Galliford Try plc’s return based on 1-year
historical prices.
Appendix 1 shows the stock price and return data of Galliford Try plc for year 2018.
1/3/2018
1/26/2018
2/18/2018
3/13/2018
4/5/2018
4/28/2018
5/21/2018
6/13/2018
7/6/2018
7/29/2018
8/21/2018
9/13/2018
10/6/2018
10/29/2018
11/21/2018
12/14/2018
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Galliford Try plc returns
Galliford Try plc returns
Time-line
Daily Returns
Figure 1: Daily returns for the year 2018. Price data for the return calculations is taken from Yahoo
Finance (n.d.).
Descriptive Statistics
Mean -0.21%
Median -0.25%
Mode -
Standard Deviation 2.61%
Sample Variance 0.000682106
Range 0.305215154
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Table 1: Descriptive Statistics based on daily return data
3.1.2 Descriptive statistics of Bovis Homes plc’s return based on 1-year
historical prices.
Appendix 2 shows the stock price and return data of Bovis Homes plc’c for year
2018.
1/3/2018
1/25/2018
2/16/2018
3/10/2018
4/1/2018
4/23/2018
5/15/2018
6/6/2018
6/28/2018
7/20/2018
8/11/2018
9/2/2018
9/24/2018
10/16/2018
11/7/2018
11/29/2018
12/21/2018
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
Bovis Homes plc returns
Bovis Homes plc returns
Time-line
Daily Returns
Figure 2: Daily returns for the year 2018. Price data for the return calculations is taken from Yahoo
Finance (n.d.).
Descriptive Statistics
Mean -0.11%
Median -0.05%
Mode -
Standard Deviation 1.74%
Sample Variance 0.000301495
Range 0.124747767
Table 2: Descriptive Statistics based on daily return data
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