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Assignment
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Table of Contents
Task 1 .............................................................................................................................3
Task 2 .............................................................................................................................5
Task 3 .............................................................................................................................8
References ....................................................................................................................12
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Task 1
a) Net Asset Value

( )
NAV = .

1515557
2015 NAV= = 7.15m
134
1630614
2016 NAV= = 7.58m
134

b) Cost of capital
cost of equity capital

when=0.8,

ke = rf + (rm-rf)

= 3% + 0.8 (6% - 3% )
= 5.4%
when=0.1,

ke = rf + (rm-rf)

= 3% + 0.1 ( 6% - 3% )
= 3.3%

cost of debt capital (assume a taxation rate of 20%).

3
kD= ( 1 0.2 ) 90

= 2.7%

weighted average cost of capital (WACC)

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WACC
= KD x VD + KE x VE
(VD + VE) (VD + VE)

VD =170 x 0.9 VE = 134 x 8.2

= 1098.8
=153

Low Beta (0.1) High Beta

= 0.027 x 153 + 0.054 x 1098.8 0.027 x 153 + 0.054 x 1098.8 0.027 x 153
153 + 1098.8 153 + 1098.8 153 + 1098.8 153 + 1098.8 153 + 1098.8

= 3.2% 5.1%

c) Dividend growth model

Low Beta High Beta

p0 = 45 x 1.0 = 13.64 p0 = 45 x 1.0 = 8.33
3.3 - 0 5.4 - 0

35.31 13.5
p0 = 45 x 1.02 = p0 = 45 x 1.02 =

3.3 2.0 5.4 2.0

d) Value per share using the price earnings (p/e) ratio

2015,
p/e ratio = 1015p = 11.28
90p

2016,
p/e ratio = 820p = 8.61
95.2p
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Task 2
The bovis manage and carry out the complete range of development activities of
housing, from buying a land through to the homes and also provide after sale services
to the customer. The company has always employed specialist from a wide range of
areas that mean that it has extensive experience at its disposal to check the housing
projects from start to end. In initiating so, we worked with house builders, agencies,
and housing associations. The bovis plc share price was affected after some market
news (Cannon, Hillerbrandt and Lansley, 2016).

The price to earnings model is used to examine the current market price of the
companys stock comparative to its EPS. The earnings of the company determine the
share price that a shareholder is willing to give. The price to earnings enable to
comprehend the fair market value of the organization shares on basis of predicted
EPS. It has been evaluated that organization give high dividends if a company earns
significant profits. Moreover, it leads to the increasing shares value in future (Share,
2011).

It seems that the house building sector needs to a wait for consolidation in an industry
ravenous of an activity for a year, after market news that an agreement among BVS
and GFRD is not going to initiate. As per the news in the market, Bovis rejected the
deal of merger after middle sex firm failed to grow its terms and conditions. It said
that the order was being failed because in order to reflect the value of the business of
Bovis. Galliford replied by saying it was not considering a merger with its kent
counterpart (Bovis, and Clarke, 2015). Its another time that Bovis failed to get into a
deal in just a month. It has been a busy week for the company as there have been the
most important developments; it was pulled off by alluring chief out of retirement to
lead the business. The new chief was given a high amount of remuneration package to
run the company and ensure the profitability for the company. The company is
expected to perform well in future years considering the previous performance of its
CEO. Bovis had been looking for a new CEO since it suffered the decline in its profits
(Bovis, 2016).

The share value of Bovis Plc shares decreases in the year 2016 because of having low
price to earnings share ratio. The organization has high expectations in 2016. It shows
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that the return on the companys investments has decreased in 2016. The company
cannot compete the price that is being offered by competitors. The average P/E ratio
was 12 in year 2016 and it shows that competitors of Bovis can successfully go
towards the last stage in future (growth stage). Therefore, it improves the competitors
stock value. Therefore, it can affect the expectations of investor that decrease the
share price of Home Plc.

Moreover, the reason behind the increase in net asset value of the company was as
follows:
The inventories (houses built or partially built awaiting sale) have recently
been revalued and it is thought that they are understated by 50m in the above
accounts.
There may be 10m of debtors (trade receivables) that cannot be collected.

As per the research completed by Fry (2014), the company has revalued its inventory
in order to increase the market value of the company. The company is performing
very well since many years because of the better understanding of the market factors
and working correlatively with the management to resolve those issues. The above
point shows that the company was not able to retain its outstanding debt. There has
been the outstanding debt of 10 million.

As per the details were given on the official website of the company
Bovishomesgroup (2016), the price to earnings ratio shows a decline because of the
increase in the finance costs. The company financial ratios show that companys
profitability was affected because of the market factors. This shows that market
factors need to be considered very properly in order for a business to earn profits. The
businesses have collapsed over the years because of the unavailability of new ideas.
The return to shareholders, in 2015, was 15% that showed a decline to 13%. The
earnings per share ratio were 11.28 in 2015 and that showed a decline to 8.61 in 2016.

2015,
p/e ratio = 1015p = 11.28
90p
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2016,
p/e ratio = 820p = 8.61
95.2p
The dividends paid in 2016 were 41.3 million and in 2015, the dividend paid was
36.7. The company had also issued new shares in 2016. Earnings per share are the
part of the companys profit that is being allocated to the shares that are outstanding
of common stock. EPS is basically an indicator of the profitability of the company
(Bovishomegroup, 2016).
However, sources of data simplify the methods by utilizing the number of outstanding
shares at the period end (Bovishomegroup, 2016).

The dividend growth model of this company shows that dividend has grown over the
years. The dividend growth model has been calculated on the basis of two Betas that
is Low Beta and High Beta. The high beta shows that the price is lower than the price
with low beta. The Beta is the risk factor that is being faced by the companies over
the time. The two beta, higher and lower has been taken in order to analyze the
financial position of the company (Bovishomegroup, 2016).

Low Beta High Beta

p0 = 45 x 1.0 = 13.64 p0 = 45 x 1.0 = 8.33
3.3 - 0 5.4 - 0

35.31 13.5
p0 = 45 x 1.02 = p0 = 45 x 1.02 =

3.3 2.0 5.4 2.0

The above discussion shows that the company financial position is neither strong nor
weak. The company has suffered some shocks in previous years because of the
market factors. The company was not able to retain its top management and was
suffering huge losses by hiring new management team with high remuneration
packages. As mentioned above, the CEO of the company was retired though he was
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again brought up on the panel with high remuneration package in order for the
company to become successful. The investor can select this company for long-term
investment. The short term focus can be harmful to the investor whereas long-term
focus can be profitable for the companies (Bovishomegroup, 2016). The investor
needs to consider all factors, his risk bearing ability, his investment ability, and
others. The investor needs to ensure that the money can be invested for long term.
Considering the technical factors, the company share price will grow at a significant
rate that will be profitable for the investor. To summarize, the investor can invest in
the share price.

Task 3
As per the details were given on the website of the company Diplomaplc (2016), the
diploma Plc is a company that is being selected for this task. Diploma plc is the top
most British supplier of products and services. The company is the part of FTSE 250
Index. The company was formed in 1931, and was listed of LSE in 1960 and till
1980; it was the market leader in building products, electronics, and special steels.
The electronic distribution business model of the company was sold in 1999. The
business of building products was sold in 2000 and the plant of special steels was sold
in 2001. The company currently has three different operations and is as follows:
Steel Products
Life Sciences
Controls
The group has become the most successful group of the British by opting the best
growth strategy. The growth strategy that is being used by the company is as follow:
1. Acquire
2. Build
3. Grow
In the acquire phase, the clear criteria have been designed to guide the acquisition
program of the group and that is as follows:
Fit with the business model of the group
Customer relationships were led by marketing
A secure supply of differentiated and high-quality products.
Powerful management
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In the build phase, the acquisitions are intended to allow entry into a new world but
the relatively similar market and thereby increase the reach of current businesses and
introduce new business opportunities. The acquisitions are being done with the
companies that are already leading in their businesses with a successful track record.
Moreover, the businesses have reached the level where more resources are required to
let them achieve the level of growth (Diplomaplc, 2016). Working closely with the
management team, the company provides the investment opportunity to build a strong
foundation to enable the company to go towards a new level of growth. The
investment that is being done are in IT systems as the world is moving towards
technology, therefore, it has become must for all business to adopt a new IT model
(Diplomaplc, 2016).

In the group phase, the proper platform is being established and the focus of that
platform is to ensure profitability and growth. Except for the case of bolt-on
acquisitions, the acquisitions will manage their distinct marketing and sales identity
and strong management teams. However, there are many opportunities for synergies
with other group businesses, and those will be managed within large clusters
(Diplomaplc, 2016).

The above-mentioned group strategy of growth has enabled it to offer the highest
share price and ensure that significant dividend is being given to shareholders on
regular basis. The diploma plc has issued significant shares over the time because of
the better marketing and better offering of products and services (Diplomaplc, 2016).

As per the picture gave above, the company has not issued any new shares in 2016
compare to 2015. The number of shares has remained same however, holdings have
changed. The company share price has shown many fluctuations over the years
because of the market conditions. As British condition was weak in 2016 because of
the Brexit, the companies suffered huge losses because of losing their contacts with
others (Markets, 2016).
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The efficient market hypothesis theory suggests that the share price moves with the
change in the market information. The change in market information leads to the
change in the share price of the company. Separating the gainers from the losers is the
most important challenge for investors. Diploma Plc has the price index of 1.21318.
The price index has been calculated by dividing the share price by the share price of
the half year back (Markets, 2016). The ratio shows an increase in the price of the
stock over the period of six months. The volatility is currently 18.2. Diploma plc
target has been boosted by the investment analysts. The brokerage currently has the
rating on the stock. The target price of Peel Hunt indicates a potential increase of
0.99% from the current price of stock (HL, 2016).
Many equity analysts have recently weighed into DPLM. There has always been a
positive news for the company within the market and thats the reason company is
earning significantly from the shares and by distributing proper dividends company is
retaining the confidence of its shareholders. The company has classified its ordinary
shares as equity. The incremental costs are directly related to the issue of new shares
are noted in the equity section as a deduction after tax. The group also ensures that
following reserves are available in order to ensure that market news remains positive:
Translation Reserve the translation reserve consists all differences of foreign
exchange from the translation of the financial statements of businesses (HL, 2016).
Hedging Reserve The hedging reserve consists the important portion of the
cumulative net change in cash value.
Retained Earnings Reserve this reserve consist of total income and expenses that are
directly attributable to the shareholders and are deducted directly from the income of
the company.
In addition to the acquiring cost of shares in the company and the liability to make
available those shares to employees in counted as a reserve. When a company
purchases the equity of a company and holders that share directly as the treasury
shares or indirectly within the trust, the amount paid, including the incremental costs
is deducted from equity that is directly related to shareholders. When shares are sold
or reissued, a consideration amount is received; net of any transaction costs and
related effects of income tax is included in equity that is attributable to equity holders
of the company. The shares are then used to satisfy the awards granted to its directors
under the scheme (Diplomaplc, 2016).
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The above discussion shows that the share price is directly linked to the market
information, therefore, companies usually try to show a good impression in the eyes
of the investor in order to ensure that investor can invest in the company. The
company also needs to ensure that negative information can be deleted from the
market on the immediate basis. The company is performing well over the years and is
ensuring profitability for its shareholders.
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References
Bovis, C. (Ed.). (2016). Research Handbook on EU Public Procurement Law. Edward
Elgar Publishing.
Bovis, C. H., & Clarke, C. M. (2015). Private Enforcement of EU Competition
Law. Liverpool Law Review, 36(1), 49-71.
Bovishomegroup, (2016). Bovis Home Group. [Online]. Available at
<http://www.bovishomesgroup.co.uk/>. [Last Accessed on 24th April
2017].
Share, E. P. (2011). Earnings Per Share. EPS, 12(12,364), 12-317.
Cannon, J., Hillebrandt, P. M., & Lansley, P. (2016). The Construction Company in
and out of Recession. Springer.
Golez, B. (2014). Expected returns and dividend growth rates implied by derivative
markets. Review of Financial Studies, 27(3), 790-822.
Diplomaplc, (2016). Diploma Plc. [online]. Available a
<https://www.diplomaplc.com/>. [Last Accessed on 24th April 2017].
Fry, G. K. (2014). Policy & Management British Civil Service. Routledge.
Hl, (2016). Hargreaves Lansdown. [Online]. Available at
<https://www.diplomaplc.com/>. [Last Accessed on 24th April 2017].
Markets, (2016). Financial Times. [Online]. Available at
<https://markets.ft.com/data/equities/tearsheet/summary?s=DPLM:LS
E>. [Last Accessed on 24th April 2017].
Telegraph, (2016). Telegraph. [Online]. Available at
<http://shares.telegraph.co.uk/fundamentals/?epic=BVS>. [Last
Accessed on 24th April 2017].