Creating and Analyzing a FTSE 100 Portfolio: Finance Report

This report provides an in-depth analysis of a hypothetical FTSE 100 portfolio, focusing on the selection and evaluation of five key companies: Glaxosmithkline, Easyjet, Intercontinental Hotel, Morrison, and Unilever. The report delves into the fundamentals of each company, including their business models, financial performance, and growth strategies. It examines factors such as beta, market capitalization, and the rationale behind investment allocations. The report also details how the FTSE 100 index is calculated and provides a comprehensive overview of portfolio construction and management techniques, aiming to maximize investor returns in a challenging market environment. The analysis includes investment amounts, weighting, and share price data, providing a practical guide to portfolio diversification and risk assessment. The report highlights the importance of considering industry dynamics and company-specific strengths in making informed investment decisions.

INTRODUCTION TO FINANCE

TABLE OF CONTENTS
Introduction .....................................................................................................................................1
How FTSE is calculated..............................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
INDEX OF TABLES
Table 1: Portfolio of five companies of FTSE 100..........................................................................1

Introduction
Investment in securities is a very difficult task especially when market is not performing
well. In such a situation portfolio creation and management techniques helps an investor in
taking prudent decisions. In this report, an attempt is made to create a portfolio that is balanced
and maximize return of an investor. In this regard five companies are taken and there industry is
also considered while selecting for analysis. Apart from this an attempt is made to understand
their fundamentals and business models. By doing all these efforts best five companies of FTSE
100 are taken for portfolio creation. In this report, reasonable reasons for selection of company
and their proportion to entire corpus is also justified.
Part 1
Table 1: Portfolio of five companies of FTSE 100
Company Investment
(£)
Beta Weighting Share
Price (p)
Investm
ent
Date-
11th
Novemb
er 2015
No. Of
Shares
Share
Price
(£)
Close-
out
Date-
13th
Novem
ber
2015
Value
(£)
Close-
out
Date
Amount BxC B/E x 100
Glaxosmitklin
e
20000 0.73
20.00%
1373.5 15 1312 19104
Easy jet 25000 0.57 25.00% 1802 14 1784 24750
Intercontinent
al hotel
25000 1.04
25.00%
2617 10 2534 24207
Morrison 10000 0.37 10.00% 156.9 64 154.43 9843
Unilever 20000 0.67 20.00% 2843 7 2758 19402
1,00,000 100.00% 109 97306

Part 2
Glaxosmitkline
Glaxosmitkline is a world leading pharmaceutical company and it has vast product
portfolio. In produce medicines related to dermatology, cosmetology, cancer, respiratory and
diseases related to central nervous system. It is London based company and operating its facility
worldwide. As per annual report, in the month of April Company enter in two agreements with
companies namely Novartis and Basel. Under this agreement, company acquires Novartis
vaccine business in which influenza vaccine is not included. Due to acquisition Novartis
manufacturing facility also comes under control of Glaxosmitkline. As a result it is expected that
company profitability in FY 2014-15 will get increased. The most important point that act as
strength of Glaoxosmithkine is that it is focusing front end model of business in which it will in
upcoming years will acquire many new companies in order to increase its geographical presence
and product portfolio. As per annual report, company planned to improve quality of its tablets
like Eltroxin (Glaxosmitkline. 2015). It is also committed towards up gradation of its technology
base at its facility. It is also focusing on increasing its presence in south Asia to increase demand
for its products. India and China may be certainly a major target of the company. Hence, on the
basis of its strategy to grow, strong global presence and strong product portfolio it is forecast that
company will grow in upcoming years. USA is matured market and there are lots of
opportunities in Asia and firm is focusing on Asia. This make outlook of mentioned form
positive form analysts side. Fundamentals of company are strong, but fluctuations are observed
in sales. This may happen because USA is a matured market and there is strong price
competition going on in USA. As a result companies compelled to sell their products at a low
price. Hence, this reason may be responsible for fluctuation in sales. Beta of Glaxosmitkline is
0.73 and it can be said that mentioned company share have higher beta. In case of fall in indices
value huge decline can be seen in share price. On other hand, company sales are fluctuating but
its fundamentals are strong. Cautious approach is followed and due to this reason proportion of
this company share in portfolio is 20%.
Easy jet
Easy jet is the UK largest low fare airline and it has strong presence in Europe. It
provides it services to large number of airports across Europe. It has strong presence in Europe
top 100 routes. Company is focusing in increasing its presence in primary airports in order to

provide its service large number of people. Over past few years, company grows at fast pace.
Easy jet is cost competitive and it has low overhead cost. This happens because it is using its
aircraft's efficiently. As a result, at low fare it is delivering its services to the customers.
Company is also focusing in maintaining its strong financial condition and in respect to this it is
making disciplined use of capital. This is also one of the core competencies of an organization.
Business model of Easy jet is very simple it operates under point to point business model with
limited connectivity to other flights. Due to cost advantage and less complicated business Model
Company is growing steadily in relevant industry. Company is strongly focusing on purchasing
slots from other companies which will increase capacity of Easy jet and its profitability will get
increased. Easy jet has strong presence in UK but in other European nations its grip is not so
strong like it has in UK (Results for six month ended 31st March. 2015). Thus, Easy jet is
planning to start flights on new routes. Over the years it has also increase its fleet size. In future
also, it will increase its fleet size. Hence, traction in fleet size, purchase of slot, commencing
flights on new routes and control on cost will acts as growth drivers of Easy jet. Fundamentals of
company are very strong and its ROCE rose by 20.5%. Thus, due to excellent strategy and strong
fundamentals as well as cost leadership growth prospects for Easy jet are very high. Beta of Easy
jet is 0.57, which can be assumed as moderate beta. In case of fall in stock market huge declined
will not be observed in this company share price. On other hand, company fundamentals are
strong and it is performing well in respective industry. Growth prospects are bright for this
company and proliferation in profitability can be seen in case of mentioned firm due to
pursuance of aggressive business expansion strategy. Hence, share of Easy jet in portfolio is
25%.
Intercontinental hotel
It is a company that is operating in a hospitality industry. This company is operating in a
industry which plays an important role in growth of UK. This company has hotels in all
continents of the world. Currently, it is operating 100 hotels in many nations of the world.
Financially company is strong and its gross and net profit ratio is also good. However, its
liquidity position is not good. By using its current assets it can pay half of its current liabilities.
Over last three years its debt is increasing at a rapid rate (Intercontinental hotel. 2015.). Thus, it
is a matter of concern to some extent. But fundamentals of the company are strong and it is
expected that it will grow continuously due to strong presence in European nations where

tourism industry is getting huge support from local governments. Beta of intercontinental hotel is
1.04 and this reflects that share price of this company share will fluctuate largely with small
fluctuation in indices value. Fundamentals of company are also strong and there is little concern
on liquidity position. Due to strong position in relevant industry and favorable support from
political environment of nations in which it is operating its business 25% share is given to
mentioned firm in the portfolio.
Morrison
Morrison is the UK largest food retailer and it has large number of stores in mentioned
nation. Morrison is operating in retail industry in which it is receiving stiff competition from its
competitors. Morrison is known for preparing a fresh food and it has its own facility where fresh
food is prepared. It produces meat, bakery and other edible items at its factory. Company also
prepared and made available fresh food to its customers as per specification given by customers.
Hence, it enjoys a good image among the people of UK. Business model of Morrison is different
from the competitors and this creates a distinct image of Morrison form its peer firms.
Management of Morrison is strongly focusing on improving cost reduction measures in order to
remain competitive in the relevant industry. Employees at the plant like butchers, bakers and
fishmongers are specializing in their work. They prepared a food in such a way that is heart
touching for the customers (Building momentum. 2015). Hence, Morrison business is
continuously growing in the relevant industry. Company is following a vertically integrated farm
to fork business model in which it purchases vegetables, grains and animals directly from the
farmers. Hence, there is no intermediary and this leads to cost saving for Morrison. In current
financial year, profitability of Morrison declines in terms of turnover. This may happen due to
lack of demand for products or strong price competition from competitors. Beta of Morrison is
0.37 and this reflects that comp-any share price fluctuate by small percentage when indices value
get changed. Morrison is operating in highly competitive industry where price competition is
intense. Due to this reason its profitability is reduced. Due to low beta and price competition
share of Morrison in portfolio is kept only 10% of entire invested corpus.
Unilever
Unilever is a company that produces a FMCG or fast movable consumer products. It is
known all over the world for producing innovative products. Today, company is operating
various products under several brand names. Due to this reason it becomes very difficult for the

company to maintain its product portfolio in proper manner. Unilever success depends on value
and relevance of the company products to the requirements of the end users. In order to earn
maximum profit from existing portfolio company is following a compass strategy. Under this
strategy, it is identifying brands that have good growth potential. After identification of such
kinds of products company prepare a strategy which helps in increasing sales of the specific
product. In current financial year, profitability of Unilever declines in terms of turnover. But it’s
operating and net profit margin growing in this fiscal year (Unilever. 2015). This happens
because firm control its costs effectively and its finance cost also declines in this fiscal year. This
shows that management of Unilever is sound. Beta of Unilever is 0.67 and it can be said that
company share price will move moderately with change in value of indices. Company
management is giving excellent leadership to an organization and this ensures that Unilever will
remain on growth track in upcoming years. Hence, on the basis of both factors mentioned
company get 20% share in entire invested corpus.
How FTSE is calculated
FTSE is a major index of the UK stock exchange which is also known as London stock
exchange. This index encompass 100 companies while fall in large cap shares. These companies
are also known as blue chip companies. FTSE increase and decline indicates the movement in
major company shares price. There is a specific methodology which is used for calculating this
index. In this regard index level is calculated and in respect to this market capitalization is
calculated by multiplying stock price with outstanding shares at an individual level for each and
every company. After that market capitalization is multiplied to free float adjustment factor. Free
float adjustment factor indicates a proportion of shares that is free floated as a percentage of
outstanding shares. After calculating multiplied value, same is divided by index divisor. Index
divisor is a value that is determined when an index is listed on stock exchange for the first time.
In an index time to time many companies shares listed and delisted at different values
(Calculating index values. 2015). As a result it becomes difficult to compare index values. Use
of index divisor prevents this problem and gives true picture of the market. Index value is simply
calculated by dividing market capitalization with index divisor. In this way, every day index
value is calculated at the end of the day. Below formula is given that can be used to calculate
index value.
Index level = (Price of stock * number of years)* free float adjustment factor

Index divisor
Index value = Total market capitalization
Index divisor
CONCLUSION
On the basis of above discussion it is concluded that fundamentals must be considered
while selecting a firms for portfolio creation. Some statistics like returns on share price and
profitability of the companies can also be considered while selecting a company for portfolio
creation. With change in indices value share price will also change and it is not necessary that
share of specific company performs in line to expectation. Hence, fundamentals of the
companies must be evaluated perfectly in order to maintain a confidence on companies’ shares
when results are not in line to expectation.

REFERENCES
Books & journals
Online
Building momentum. 2015. [PDF]. Available through: <
http://www.morrisons-corporate.com/ar2015/pdf/Morrisons_AR_2014_Full.pdf>.
[Accessed on 13th November 2015].
Calculating index values. 2015. Available through: < http://www.ftseangle.com/learning-
modules/how-is-an-index-value-calculated/>. [Accessed on 13th November 2015].
Glaxosmitkline. 2015. [Online]. Available through:
<http://markets.ft.com/research/Markets/Tearsheets/Summary?s=GSK:LSE>. [Accessed
on 13th November 2015].
Intercontinental hotel. 2015. [Online]. Available through: <
http://markets.ft.com/research/Markets/Tearsheets/Summary?s=ULVR:LSE>. [Accessed
on 13th November 2015].
Results for six month ended 31st March 2015. [PDF]. Available through:
<http://corporate.easyjet.com/~/media/Files/E/Easyjet-Plc-V2/pdf/investors/results-
centre/2015/2015-half-year-results-statement.pdf.[Accessed on 13th November 2015].
Unilever. 2015. [PDF]. Available through: <
https://www.unilever.com/Images/ir_unilever_ar14_tcm244-421557_en.pdf>. [Accessed
on 13th November 2015].