ADH.AX Stock Analysis: Return, Risk, Beta in Corporate Finance

This report provides a detailed analysis of Adairs Ltd (ADH.AX) stock, focusing on return, risk, and beta calculations across two sub-periods (June 2014 to February 2016 and February 2016 to October 2017). The analysis includes calculating and tabulating stock and market returns, computing mean, standard deviation, variance, and correlation coefficients, and estimating beta for the company. The report also interprets the beta values and discusses factors influencing beta changes, such as market dynamics, business cycle variables, and investor expectations. The company's business operations, including its retail segments and store formats, are also summarized, with references to Reuters and Yahoo Finance for data and company information.

FINANCE
Assessment 2
Question 1 (a)
Refer excel, data has been downloaded and segregated for two periods as stated in the
question.
Question 1(b)
Refer excel, return has been calculated by dividing July price by June price -1. Further, the
risk free rate of return has been taken as it is provided in the question.
Accordingly, the return as required under the question has been calculated and tabulated.
Question 1(c)
Refer excel, the mean, standard deviation, variance and correlation coefficient has been
computed by applying formulas in excel.
Further, on deriving the values the following understanding has been arrived:
(a) For stock and Risk free rate of return (30-06-2015 to 29-02-2016), there exists a negative
correlation of -0.403. Thus, the same can be used as a perfect hedging tool as the
increase in return of one leads to decrease in other. Further, the risk profile is 3.98% as
represented by standard deviation;
(b) For stock and Risk free rate of return (29-02-2016 to 31-10-2017), there exists a negative
correlation of -0.06. Thus, the same can be used as a hedging tool as the increase in
return of one leads to decrease in other. Further, the risk profile is 15.97% which is
represented by standard deviation and is high;
(c) For market and Risk free rate of return (30-06-2014 to 29-02-2016), there exists a
positive correlation of -0.0018. Thus, the same have a positive relationship i.e both return
in same direction. However, the bonding of such movement is not so strong and is weak
in nature. Further, the risk profile is 4.21% which is represented by standard deviation
and is low;
(d) For market and Risk free rate of return (29-02-2016 to 31-10-2017), there exists a
negative correlation of -0.1538. Thus, the same can be used as a hedging tool as the
increase in return of one leads to decrease in other. Further, the risk profile is 3.99%
which is represented by standard deviation and is high; (Yahoo Finance, n.d.)

Question 1(d)
Refer Excel, for the computation of beta. The same has been computed by using the formula
Covariance of stock and market / standard deviation of market.
Question 1(e)
The beta is a measure of systematic risk of the company. The beta of the two periods have
been detailed here-in-below:
(a) For 1st sub-period Beta is .00047 which is very low while the beta for the market stands
at 1 representing a 1 AUD change in the market changes the price of share by .00047
AUD only. Thus, the share has a very less relation to the market;
(b) For 2nd Sub-period Beta is -0.0107 which is again very low while the beta for the market
stands at 1 representing a 1 AUD positive change in the market changes (decrease) the
price of share by .0107 AUD. Thus, the share has a very less relation to the market.
(Yahoo Finance, n.d.)
Question 1(f)
Adairs Limited is a public company listed on Australian Stock Exchange. The company has
its headquarter in Melbourne, Australia. Adiars is engaged in the business of retailing of
homewares and home furnishing. The services offered by the company ranges from product
designing, development, sourcing, distribution and retail operations. There are two segments
of business core and staple category and fashion and decorator product categories.
Adairs staple category of business comprise plain bed linen, bedding and towelling products.
Further, the fashion and decorator category products encompasses fashion bed linens, soft
furnishings, bedroom furniture and occasional furniture. The company market its product
under its own brand. The company is running approximately 130 stores in Australia under
five different physical formats. (Reuters, 2018)The name of those outlets are detailed here-in-
below:
(a) Adairs;
(b) Adairs kids;
(c) Adairs Homemakers;
(d) Urban Home Republic (UHR);p
(e) Adiars Outlets.
Question 1(g)
The beta for two period shall be different on the basis of various factors and one cannot
actually ascertain the reason for such change. The following are some of the factors whioch
are responsible for change in beta:
(a) Market is dynamic;
(b) Change in variables related to business cycle of the company;
(c) Time varying market conditions;

(d) Firm specific conditions like debt, production etc;
(e) Change in risk profile of the company;
(f) Investor expectation about the future prospect of the company;
(g) Resignation of Key Managerial Personnel;
(h) Market Volatility;
(i) Global economic conditions etc
References:
Reuters, 2018, Adairs Ltd (ADH.AX,. [Online]
Available at: https://www.reuters.com/finance/stocks/companyProfile/ADH.AX
[Accessed 17 September 2018].
Yahoo Finance, n.d, Adairs Limited, [Online]
Available at: https://au.finance.yahoo.com/quote/ADH.AX/profile?p=ADH.AX
[Accessed 17 September 2018].
Yahoo Finance, n.d. Adairs Limited, [Online]
Available at: https://au.finance.yahoo.com/quote/ADH.AX/profile?p=ADH.AX
[Accessed 17 September 2018].