Finance for Accountants

FINANCE FOR ACCOUNTANTS 10

Financefor Accountants

Financefor Accountants

AucklandInternational Airport Limited

Industryanalysis

AucklandInternational Airport Ltd operates in an environment that has fiercecompetition. The company is exposed to competition from variedairline alliances, as well as direct competition. Nevertheless,long-haul market competition is considerably less intense thandomestic and short-term markets as a result of few substitutes andenhanced brand identity. Further, long-term market competitivepressure is often alleviated by codeshare alliance agreements. On thesame note, new routes and markets are established via integratingcapabilities leading to mutual profits and a reduction in the directcompetition. Additionally, new entrants do not offer substantialcompetition as a result of the immense capital outlay required. Asmuch as deregulation has fostered the entry of new companies into theindustry, advantages that come with incumbency such as brandidentity, preferential access to key airline hubs are immensebarriers to overcome.

Companyanalysis

AucklandInternational Airport Limited (AIA) offers airport facilities andsupporting infrastructure in New Zealand. Its core operations areprimarily aeronautical activities on standalone investmentproperties, airport retail concessions, car parking facilities, aswell as other rents and charges relating to airport operations.

Fundamentalanalysis

Thetotal income for the year 2012/2013 was 448, 458, 000, which was anincrease from the 2011/2012 income of 426,813,000. A similar increasewas seen in its expenses which were 117,624,000 in 2012/2013financial year up from 107,524, 000 in 2011/2012. On the same note,its total assets increased to 3,938,552, 000 from 3,875,533,000 in2012/2013 and 2011/2012 respectively. Its shareholders’ equity alsoincreased from 2474767000 to 2499507000 in 2011/2012 and 2012/2013respectively.

Capitalstructure

Thisunderlines the manner in which a company finances its growth andoperations using varied sources of funds. In the case of AIA (ltd), alarge proportion of its capital emanates from shareholders equity,which amounts to about 2,499,507,000. These are augmented by termborrowings amounting to about 1,010,236,000, as well as derivativefinancial instruments amounting to 21,733, 000.

DividendPolicy

Thecompany’s dividend policy involves paying 100% of net profit aftertax. This is done on a bi-annual basis, with the net profit excludingone-off items, treasury instruments and unrealized losses and gainsfrom property revaluation.

Riskand return

Expectedtotal returns on stocks

K=E/Por k= D/P +g

K-expectedreturn, E- Earnings per Share P- Stock price D- dividends per share,g- growth in dividends

K=

d=0.12

P=3.80

g=14.3%

k=0.12/3.80 +14.3% = 0.17457895

Riskmay be calculated by determining the price-to-earnings ratio

Inthe case of Auckland International Airport Limited, theprice-to-earnings ratio is 3.80:0.12, which amounts to 0.0315%

FISHER&amp PAYKEL HEALTHCARE CORPORATION LIMITED (FPH)

Industryoverview

Thiscompany operates in an industry that experiences intense competitionfrom other well established companies. However, the high amount ofcapital needed to establish and compete in this market ensures thatnew entrants’ competition is considerably reduced. In most cases,companies engage in mergers all in an effort to enhance theircompetitiveness and reduce direct competition with each other. Thisalso enhances their capacity to eliminate or extinguish the capacityof new entrants to offer fundamental competition.

Companyanalysis

Fisher&amp Paykel Healthcare Corporation Limited undertakes the design andmanufacture, as well as marketing of heated humidification systemsand products used in treatment of sleep apnea and respiratory care. Further, it provides neonatal care and patient warming productsincluding infant resuscitators and warming products.

Fundamentalanalysis

Thecompany’s total operating expenses were 197,511,000 on 2012/2013financial year, which was an increase from the previous year’samount of 184,632,000. This was offset by the operating revenues thatamounted to 556,250,000, again an increase from the 516,688,000 fromthe previous year. This resulted in an increase in operating profitsfrom 92,805,000 to 112,733,000. On the same note, the company’stotal assets increased from 572,054,000 to 618,597,000 in 2012 and2013 respectively, as did its total equity from 348,152,000 to374,231 in 2012 and 2013 respectively.

Technicalanalysis

Thiscompany aims at doubling its constant currency revenue every 5-6years although it does not have a reputation for seekingacquisitions. However, it is extremely competitive, while theincreasing demand for healthcare lowers the company’s exposure tofinancial risk.

Capitalstructure

Alarge proportion of the company’s capital comes from share capitaland retained earnings, which amount to 92,815,000 and 194,918,000 forthe year 2013.

Dividendpolicy

Thecompany has maintained a bi-annual dividend payment policy. As at2013 financial year, the dividend amounted to 12.2 cents per ordinaryshare, equal to 87% of the net profit after tax.

Riskand return

Expectedtotal returns on stocks

K=E/Por k= D/P +g

K-expectedreturn, E- Earnings per Share P- Stock price D- dividends per share,g- growth in dividends

Earningsper share = 14.3 cents

Shareprice = 4.630

K= 0.143/4.630 = 0.03088553

Priceto earnings ratio

4.63:0.143

PORTOF TAURANGA LIMITED (NS) (POT)

Companyanalysis

POThas remained as the major export port and largest port in NewZealand, with the fundamental export commodities being dairy,kiwifruit and forestry-based products. POT’s large container portincorporates a rail linkage to the inland MetroPort operation. Itowns 50 percent of the PrimePort Timaru, 50 percent of NorthPort, aswell as Tapper Transport, a logistics company based in Auckland.Further, the company is involved in the cleaning, washing, storage,as well as inspection of shipping containers in Southdown railterminal.

Industryanalysis

Theports of Auckland prop the cruise industry via providing berthage,logistic and marine services. New Zealand has a total of 16 portsincluding large international ports in substantial population basesand areas of trade catchment, as well as smaller ports that serveregional hinterlands. Five of these are non-container ports thathandle break-bulk and bulk cargo exclusively, while the remainingones are container ports. Container ports have been under increasedpressure to increase their peak capacity requirements. Agingterminals are struggling to compete with their rivals in the eastcoast of Australia. However, only the Port of Tauranga has progressedin the expansion for larger vessels as others are encountering publicopposition and regulatory delays to their progress. Further, immensecapital is required in the establishment of a port, not to mentionintense government regulation, which hinders new entrants fromaccessing the market.

Capitalstructure

Thetotal equity of the company is at 793,878,000 as at 2013, which is anincrease from the 733,874,000 from the previous year. On the samenote, the operations of the company are financed via loans andborrowing, which currently stand at 79,767,000, an increase from theprevious year’s 55,077,000. This has pushed the total liabilitiesof the company from 300,004,000 in 2012 to 318,703,000 in 2014. Aclose examination of the shareholders’ equity reveals that itstands at 71.4%, a slight increase from the 71.0% in 2012.

Dividendpolicy

Thecompany pays dividends to shareholders on a bi-annual basis, with aninterim dividend being paid at the middle of the financial year,while the final dividend is paid at year end.

Riskand return

Expectedtotal returns on stocks

K=E/Por k= D/P +g

K-expectedreturn, E- Earnings per Share P- Stock price D- dividends per share,g- growth in dividends

Earningsper share 57.6 cents

StockPrice 15.85 dollars

K=0.576/15.85 = 0.0363

Riskto earnings ratio

15.85:0.0576

Summary

Thethree companies examined in this seem to be major players in theirrespective industries. In essence, they have established their brandnames to the extent that that they do not face any substantialcompetition from new entrants in the market. This is complemented bythe high capital that is required to enter the respective industries,as well as government regulations and public interests. However, theyoften face direct competition from other players, which they oftencounter by making alliances with other players so as to eliminatedirect competition and enhance their competitiveness, both in theshort run and the long run.

Forthe three companies, a large proportion of their operations arefinanced using the shareholders’ equity, as well as short-term andlong term borrowing. This makes them quite risky investments in thelong run. Nevertheless, they all seem to operate at a profit and faceimmense chances of growth, in which case investing in them would beworth the finances.

Outline

AucklandInternational Airport Limited

Industryanalysis- the environment within which the company operates, and thedynamics that are likely to affect its competitiveness.

Companyanalysis- what operations do the company engage in?

Fundamentalanalysis- the company’s income, revenue, expenses and shareholders’equity.

Capitalstructure- mostly by shareholders’ equity.

Dividendpolicy- bi-annual basis.

FISHER&amp PAYKEL HEALTHCARE CORPORATION LIMITED (FPH)

Industryanalysis- the environment within which the company operates, and thedynamics that are likely to affect its competitiveness.

Companyanalysis- what operations do the company engage in?

Fundamentalanalysis- the company’s income, revenue, expenses and shareholders’equity.

Capitalstructure- mostly by shareholders’ equity.

Dividendpolicy- bi-annual basis.

PORTOF TAURANGA LIMITED (NS) (POT)

Industryanalysis- the environment within which the company operates, and thedynamics that are likely to affect its competitiveness.

Companyanalysis- what operations do the company engage in?

Capitalstructure- mostly by shareholders’ equity.

Dividendpolicy- bi-annual basis.