Assignment Task
Case A: Performance and sustainability
Freshly armed with your new Warwick MBA, you have recently joined an executive recruitment firm that specialises in advising and placing senior managers in the drinks industry. One of your clients is currently considering an offer of a senior post at Britvic Plc when a similar post comes up at AG Barr Plc.
Your client has some time to respond to Britvic Plc so is interested to learn more about both companies. She has commissioned you to write a report advising her on the past financial position and financial strength of AG Barr Plc in comparison to Britvic Plc. Your client, given the current circumstances of Covid-19, is particularly interested in how the two companies compare in terms of financial performance, financial stability and job security post- Covid-19.
Required
Write the requested report comparing the financial performance and position of both companies as well as commenting on their future sustainability. Ensure that you make clear conclusions and recommendations.
Case B: Risk and return on equity of Britvic plc and AG Barr plc
Your client is also interested in the cost of equity capital of Britvic and AG Barr. She asks you to provide a comparison of the two companies in terms of equity risk and return, based on monthly prices between July 2016 and June 2021 (60 months).
Required
Write a separate report that summarizes the results of your calculations, describes what you did to obtain them and what your thoughts are on how to interpret them against the background of the risk-return trade-off in financial markets. Please use stock price data mentioned above and the FTSE 250 index to answer the following questions:
1. (a) What is each company’s return volatility over the sample period? What is each company’s compounded annual growth rate (of its stock price) over the sample period? How would you explain the likely reasons for that growth rate?
2. (b) What is each company’s beta with respect to the FTSE 250 Index? How would you interpret your estimated betas?
3. (c) What is each company’s cost of equity capital? Please use the Capital Asset Pricing Model (CAPM). How would you explain any difference in the cost of equity capital to your client?
4. (d) How would you identify the amount of systematic risk and the amount of unsystematic risk in each stock, using the CAPM? You do not have to perform that calculation, but your client is curious about how this identification works.
5. (e) Are historical data suitable for judging the future development for these two stocks?
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