Financial Analysis: Vector Limited Investment Position Presentation

This presentation provides a comprehensive financial analysis of Vector Limited, a gas and electricity distribution company operating in Auckland, New Zealand. It begins with a company overview, highlighting its services, founding year, and market position. The presentation then explores Vector Limited's business strategies, including its diversity and inclusion initiatives and market expansion plans. A detailed financial analysis follows, examining key metrics like Return on Capital (ROC) and the Weighted Average Cost of Capital (WACC). Furthermore, the presentation delves into equity valuation, using both the dividend discount model and discounted cash flow methods to assess the company's stock value. The analysis concludes with investment recommendations based on the valuation results, offering insights into the company's potential for investors. References to company sources and academic publications are included to support the analysis.

Vector Limited
Student’s Name
Financial Statement Analysis

Introduction
The presentation focus on the investment
position of Vector limited. Following points
will be discussed in these slides:
Company overview
Business strategy and prospect
Financial analysis
WACC
Equity valuation methods

Company Overview
Vector limited is a gas and electronic distribution
company which is running its business in
Auckland, New Zealand.
Vector limited is the largest electricity Distributor
Company and number 2 in case of LPG.
The company owns a fibre optic cable network to
manage the distribution of electricity and gas.
The company has been founded in 1999.
Main services of the company are electricity
distribution, LPG retailing and natural gas
retailing (about us, 2018).

Business strategy and
prospects
The main business strategies of the company are as
follows:
Diversity and inclusion strategy:
Diversity and inclusion strategy of the company briefs
that the great diversity has helped the company to get
richer range of ideas and the broader ideas and
perspective to understand the customer’s needs and
serve them efficiently which has enhanced the business
growth of the company (Diversity and Inclusion, 2018).
The main prospect of the company is to enhance the
market share through entering into the new market and
grab the market. The company has planned the
diversification strategy for that only.

Financial analysis
Financial analysis is a process to evaluate
the financial performance and the financial
position of an organization on the basis of
its financial statement, market stock price
etc of the company.
Financial analysis of the company explains
about various changes into the
performance and the activities of the
company due to economical factors and the
lower industry position (Our Approach,
2018).

Return on capital
Return on capital is a profitability ratio. It is calculated to measure the
total return of investment of capital contributors of the company i.e.
shareholders and the debt holders.
The return on equity level of the company has been lowered because
of less net income as well as the dividend amount in 2017
However, ROC is not enough to make a decision about the investment
into a particular company. And thus, various other factors have also
been evaluated further to measure the investment position of the
company

WACC (Weighted average cost of
capital)
Weighted average cost of capital (WACC) is
a process to calculate the total cost of
capital of an organization on the basis of
equity weight, preference weight, bond
weight and debt weight.
WACC calculations process has been done
on Vector limited to recognize the total cost
of capital of the company.
The cost of debt and cost of equity has
been evaluated on the basis of their weight
to evaluate the WACC (Garrison et al,
2010).

WACC calculations
WACC calculations of Vector Limited (Book Value)
(Amount in $ million)
Price Cost Weight WACC
Debt 1,771 4.68% 0.42 1.97%
Equity 2,431 3.14% 0.58 1.82%
4,202 Kd 3.79%
Calculation of cost of debt
Outstanding debt 1,771
interest rate 6.50%
Tax rate 28.0%
https://vectorwebstoreprd.blob.core.windows.net/blob/vector/media/vector-regulatory-
disclosures/annualreportvec173_ar2017_web_final.pdf
Kd 4.68%
Calculation of cost of equity (CAPM)
RF 2.76%
RM 8.00%
Beta 0.073
Required rate of return 3.14%

Stock valuation
Valuation of equity is a process to analyze the actual worth of
the equity in the market. The main aim of equity valuation is
to analyze the value of the organization for the society.
In case of vector limited, dividend discount model and
discounted cash flow methods have been taken into the
concern to evaluate the performance and the position of the
company.
dividend discount model takes the concern of total dividend
expected, growth rate, discount rate etc to analyze the actual
worth of the stock per shares of the company (Hansen,
Mowen & Guan, 2007).
discounted cash flow (DCF) process takes the concern of
average cash flow of the company of last 5 years,
discounting rate of the company etc to analyze the actual
worth of the stock per shares of the company.

Dividend discount model
It explains that the stock price per share of
the company on 4th May 2018 is 3.2 and the
intrinsic value of the company is $ 0.61. It
explains that the stock price of the
company is overvalued.
Dividend Discount Model
Dividend expected 0.01
Growth rate 1.66%
Discount rate 3.14%
Intrinsic Value (Dividend expected / Discount rate -
growth rate) 0.61
Stock price 3.2

Discounted cash flow
On the basis of above evaluation, it has
been found that the stock price per share
of the company on 4th May 2018 is 3.2 and
the intrinsic value of the company is $ 9.08.
It explains that the stock price of the
company is undervalued.
Present value of terminal cash flows
Terminal cash flows 55.87 8,629.53
Total value of Equity 9,047.16
No of Shares Outstanding 1,000.00
Per share value of value of equity 9.08

Summary
So, it is concluded that the investors should
invest into the company for great profits;
the dividends of the company are not good
but the investment into the company would
offer huge profit at the time of selling the
security. Thus the investors should invest
into the security of the company.