University of Strathclyde Financial Management & Stock Performance Lab Report

Content Type

User Generated

User

Qnavry333

Subject

Writing

School

University of Strathclyde Glasgow

Description

For companies company A (Robert Walters) and company B (NCCgroup), you can collect the data such as stock prices from various vendor: for example, Yahoo Finance, Bloomberg, or Datastream. For the financial statements or other information about the companies, it is also advised to check the company’s webpage.

Provide brief descriptions of Company A and of Company B
Next, compare and contrast the stock return performance of the two companies’ common stocks over the calendar period using monthly return data from January 2016 to December 2020. Specifically, calculate the mean, variance and standard deviation of the monthly returns of the two stocks separately.
Briefly comment on your results and make a stock recommendation.
To complete the assignment, you will need to collect various sorts of data which can be downloaded from different sources (e.g., Yahoo Finance, the website of the company, Datastream).

Unformatted Attachment Preview

Finance & Financial Management 2020/2021 Individual Assignment This document describes the coursework component for Finance & Financial Management which counts for 70% of the final mark for the course. You are required to complete this coursework individually but discussing in groups is highly encouraged and recommended. Details of the questions are given below. Assignment Each student is required to one company (Company A) from the list of companies that are publicly traded on the main market of the London stock exchange (LSE). Another company that will be considered (Company) is given matched with the selected Company A. For companies (Companies A and B), you can collect the data such as stock prices from various vendor: for example, Yahoo Finance, Bloomberg, or Datastream. For the financial statements or other information about the companies, it is also advised to check the company’s webpage. Part 1 To complete this part, you will require data on your companies’ monthly common-stock returns from January 2016 to December 2020.1 Required: 1. Suppose you are advising an investor who is considering investing all his/her wealth in the stock of just one of the two companies that you chose (Company A) and that is given (Company B). a. Provide brief descriptions of Company A and of Company B. b. Next, compare and contrast the stock return performance of the two companies’ common stocks over the calendar period using monthly return data from January 2016 to December 2020. Specifically, calculate the mean, variance and standard deviation of the monthly returns of the two stocks separately. c. Briefly comment on your results and make a stock recommendation. 1 The period can be shorten if the stock is listed after January 2016. In this case, please clearly state this at the beginning of your report. 1 2. Now suppose you are advising an investor who is considering investing all his/her wealth in a portfolio consisting of the two companies’ common stock (Company A and Company B) held together. a. Calculate the mean, variance and standard deviation of the returns of portfolio comprising the two stocks with equal weights (i.e. 50:50). Next repeat the calculations for alternative portfolio weights, including 10:90, 20:80, 40:60, 60:40, 80:20, and 90:10. You may choose to construct other additional portfolios (but remember the portfolio weights need to add to 100%). Report your results in a table. Compare and contrast your b. c. d. e. findings with those of the single-stock portfolios in 1(b). Illustrate your results in 2(a), along with the single-stock results in 1(b), in a graph plotting the trade-off between the mean return and standard deviation of the portfolio returns. In the trade-off graph in 2(b), indicate the efficient frontier (assuming the stocks of Company A and B are the only available assets). Finally, try to identify the minimum variance portfolio in the trade-off graph. To do so, you can use trial and error, or the method outlined in the notes that you can find in MyPlace. Report the portfolio weights of the minimum-variance portfolio, and the mean, variance and standard deviation of returns of the minimum-variance portfolio. Based on your findings in the previous parts, briefly explain to the investor how to choose his/her optimal portfolio assuming the two stocks are the only assets available to him/her. Also briefly indicate how your advice would change if other assets (e.g., risk-free asset) became available to the investor. Part 2 In Part 2, focusing only on Company A that you chose, you are asked to implement the firm (equity) valuation models by estimating the future dividend flows of Company A. You should clearly explain your calculations and methods used in 1 and 2. It is also recommended to briefly describe and justify the data and (proxy) measures you are using, and state and discuss any assumptions you are making. Any assumptions made to estimate the future dividend flows or cost of capital should be clearly explained with rationale. Required: 1. Calculate investors’ required rate of return on Company A’s equity. 2. Calculate Company A’s equity value. You can choose either the dividend discount model or the total payment model. It is recommended to briefly explain your choice. It is also expected to see the comprehensive understanding on Company A’s dividend policy or investment strategy. This will also help to justify your estimate of future dividends or stock repurchase to implement the model. 3. Compare your value in 2 with the market value (stock price). 2 Collecting data To complete the assignment, you will need to collect various sorts of data which can be downloaded from different sources (e.g., Yahoo Finance, the website of the company, Datastream). 1. Equity data Download the equity return data from Yahoo Finance, Bloomberg, or Datastream. You will need to calculate the monthly holding period returns for your chosen company and the FTSE 100 Index. Holding period returns are defined as follows: 𝑝𝑖𝑡 + 𝑑𝑖𝑡 𝑟𝑖𝑡 = ( − 1) 𝑝𝑖(𝑡−1) where 𝑟𝑖𝑡 is the holding period return for company i for month t, 𝑝𝑖𝑡 is the price of company i at the end of month t, 𝑑𝑖𝑡 is any dividend declared ex div during month t adjusted to an end-of-month basis, and 𝑝𝑖(𝑡−1) is the price of company i at the start of month t (adjusted if necessary for any changes in capitalizations to make it comparable with 𝑝𝑖𝑡 ). You can also use the adjusted price without considering divided payments as it is the price adjusted to reflect the dividend payments for convenience. If you want to express returns in percent (%) you have to multiply the equation for the (decimal) holding return above by 100. Make sure you convert returns collected from different data sources to the same units (decimals or percent). The total market value of the equity (market capitalization) can be calculated by multiplying the number of shares outstanding by the market price of the shares. You need to find the total number of outstanding shares of the company and the current market share price of your chosen company. 2. Estimating equity betas You can estimate the CAPM beta of Company A’s equity using the following regression: 𝑟𝑖𝑡 − 𝑟𝑓𝑡 = 𝛼 + 𝛽𝑖 (𝑟𝑚𝑡 − 𝑟𝑓𝑡 ) + 𝜀𝑖𝑡 where 𝑟𝑖𝑡 is the monthly return on the company’s stock, 𝑟𝑚𝑡 the monthly return on the market (FTSE 100 Index), 𝑟𝑓𝑡 the monthly return on a “risk-free” asset, and 𝜀𝑖𝑡 is the error term. Calculations can be done in Excel. You will need to ensure that the Analysis ToolPak has been added in. You can easily check this by clicking on Tools in the menu at the top of the screen in Excel. If it 3 has been added, “Data Analysis” will appear in the list. If “Data Analysis” is not there, click on “AddIns” and check (i.e., tick) the “Analysis ToolPak” box. The Regression function in Excel can be found in the Data Analysis… part of the Tools menu. When you click on Regression, you will be asked to input a Y range and an X range. In the SML equation (of the CAPM), the Y range is your company’s excess return ( 𝑟𝑖𝑡 − 𝑟𝑓𝑡 ) while the X range is the excess return on the market (𝑟𝑚𝑡 − 𝑟𝑓𝑡 ). Please remember to use the Help menu in Excel. Submission Please upload the following documents to Myplace until the deadline (29th April, noon): 1. Excel files including the raw data and analysis 2. Report (words or pdf) There is no strict words count for the report, but it is advised to make it no more than 8,000 words. The Turnitin score of the report should be no more than 15%. 4
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Explanation & Answer

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Running Head: COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO
COMPANIES

Comparative Analysis of Stock Performance of Two Companies
Name
Institution
Course
Date

1

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES

2

Company A: Robert Walters Group
Robert Walters Group is an international firm that specializes in the professional
recruitment of highly experienced, qualified, trained, and knowledgeable senior managers and
executives of organizations and institutions. The professional recruitment firm employs potential
employees on either a temporary, contractual, or permanent basis, depending on the position's
job description. Having begun its professional recruitment service in 1985, the global recruitment
firm operates in all six continents globally. The company has its headquarter in London and has
an estimated revenue of 938.4 million British sterling pounds with a net income of 302.4 million
British sterling pounds as of December 2020. The main investment goal of Robert Walters
Group is to generate attractive returns from its professional recruitment activities and long-term
capital appreciation.
The professional recruitment firm has invested in the professional recruitment of experts
in human resources outsourcing services and operates several offices across the world. It is
known for placing professional, IT, and call center candidates into professional positions either
on permanent or contractual terms. Among its areas of focus are the financial and commercial
sectors of Continental Europe, The United Kingdom, Australia, and the United States.
Robert Walters has expanded its investment portfolio from an accountants’ recruitment firm into
a multidisciplinary professional recruitment firm offering recruitment services on a permanent,
contractual, and interim basis in the professional fields of accounting and finance, engineering,
banking, and financial services, legal, sales and marketing, human resources, secretarial and
support, information technology, and supply chain and procurement. The firm’s area of
specialization is the provision of recruitment process outsourcing and managed services.

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES

3

Robert Walters Group was listed in the London Stock Exchange in 1997 and has since set
up a fully owned subsidiary called Resource solutions that offers outsourcing and recruitment
processes and services. The company’s stock portfolio took an upwards trajectory after it
acquired Trista in 1997 and merged it with StaffMark Inc. in 1998, only to emerge after two
years of operation and relisted in the London Stock Exchange. The professional recruitment firm
has three major investment portfolios: the Robert Walters Group Inc. that specializes in the
provision of permanent, interim, and contractual recruitment across all industry sectors. The
professional recruitment firm operates at all levels of seniority and finds jobs for workers in the
accounting & finance, HR, support and administration, banking, legal, technology, supply chain,
sales & marketing, engineering, and procurement & logistics fields.
The second investment portfolio is Resource Solutions Inc. that was established in 1997
as an outsourcing business for the recruitment process. This subsidiary has improved the stock
valuation of Robert Walters Group in the London Stock Exchange because of its role as an
international leader in MSP (Managed Service Provider). RPO (Recruitment Process
Outsourcing) and talent advisory solutions. This subsidiary has invested in offerings that span all
recruitment areas, mitigating the risk of recruitment, facilitating candidate management, and
using technology to gain control over recruitment activities to achieve an improvement in
candidate experience and hiring manager. The third investment portfolio for Robert Walters
Group is Walters People, which operates as a contract recruitment and junior permanent hiring
business in Belgium, Spain, the UK, France, the Netherlands, Ireland, and Hong Kong.
Company B: NCC Group
NCC Group is a global technology firm dealing in cybersecurity. The company has its
head office in the United Kingdom and provides information insurance for organizations

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES

4

interested in managed services, cybersecurity consultation, software verification, and escrow.
Today, NCC Group has grown into a global cybersecurity firm with over 15,000 clients globally.
It is listed on the London Stock exchange and trades with the ticker name NCC. It has become a
constituent of the FTSE 250 global index of publicly listed companies in the world. The
company has specialized in the provision of cybersecurity services to the finance and
professional service sector, technology, media, telecommunication, sector, Transport, and
manufacturing, Public data in a government database, retail sector, and energy utilities.
The firm has invested in cybersecurity and information security source code escrow and
effectively manages its service operations. The revenue of the company stood at 263.7 million
British sterling pounds, which translates into a net income of 19.1 million and a net operating
income of 31.1 million. NCC Group was admitted to trading publicly in 2004 on aim and
managed to raise its floatation of 36.1, 1 million British sterling pounds. The support that the
company received in 2000 earned it a network of 30 million British pounds. NCC Group
comprises two operational segments with a focus on Assurance and Software Resilience. Among
the specialized cybersecurity services that NCC Group provides are compliance and
accreditations, vulnerability scanning, managed detection and response, and risk management.
NCC Group has expanded its asset portfolio through the acquisition of various firms in
the information technology industry. Among the major notable acquisitions that have increased
the investment portfolio of NCC, Group Inc. is the acquisition of the Recall Total Information
Management's escrow division in 2006, Source Harbor, and secure tests. the company has also
acquired Site Confidence, Escrow Europe, and Next-Generation Security Software (NGS) in
2008. Other acquisitions are 2010 iSEC Partners Inc., SDLC Solutions, and Meridian Services
International 2010. The company has also acquired Axzona Ltd and Escrow Associates in 2011

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES

5

and then acquired Matasano Security and Intrepidus Group in 2102. In 2014, the firm acquired
FrtConsult A/S and Open Registry Group, while the Accumul and Fox-IT were acquired in 205.
Another major acquisition was made in 2016 that involved the acquisition of Payment Software
Company, Inc. and 2016 VSR, Inc. In 2012 NCC Group invested £6 million to acquire Artemis
Internet as a fully owned subsidiary used to apply for a new .secure generic Top-Level Domain
(gTLD) used to develop an associated security program. This investment was later abandoned,
and the .secure domain was assigned to a different applicant. Again, the company acquired the
right to operate the generic Top-Level Domain (gTLD) .trust from Deutsche Post in 2014, an
investment that boosted its investment portfolio.
1b. Comparison of Stock Performance.
The comparison of stock performance for NCC Group and Robert Walters Inc. begins
with gathering historical data of stock performance for the two companies. Thus, the current
monthly adjusted close figure of stick performance of each company’s stock will be divided by
the previous month's figures and then subtract one from the result to get the average
proportionate stock performance of either company. The average after summing up the
individual monthly return from this calculation will result in a mean return for five years. The
variance and standard deviation of these stocks are then sued to ascertain the statistical
significance of the figures so that they aid in concluding whether the stocks are performing better
latterly or worse compared to the past years.
Robert Walters Inc.

Date
1/1/2016
2/1/2016
3/1/2016
4/1/2016

Adj Close
291.3365
268.3827
272.7968
293.985

Volume
2221290
1007120
4284505
2107635

Monthly Rate of
Return
0.085526
-0.01618
-0.07207
0.010622

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES
5/1/2016
6/1/2016
7/1/2016
8/1/2016
9/1/2016
10/1/2016
11/1/2016
12/1/2016
1/1/2017
2/1/2017
3/1/2017
4/1/2017
5/1/2017
6/1/2017
7/1/2017
8/1/2017
9/1/2017
10/1/2017
11/1/2017
12/1/2017
1/1/2018
2/1/2018
3/1/2018
4/1/2018
5/1/2018
6/1/2018
7/1/2018
8/1/2018
9/1/2018
10/1/2018
11/1/2018
12/1/2018
1/1/2019
2/1/2019
3/1/2019
4/1/2019
5/1/2019
6/1/2019
7/1/2019
8/1/2019
9/1/2019
10/1/2019
11/1/2019

290.8951
233.2076
269.9827
295.9943
322.9028
311.6204
311.6204
308.572
334.2017
364.0088
393.816
410.3003
391.5579
389.2432
434.8076
467.0918
515.6656
572.2968
547.4344
545.1323
604.0656
615.1155
626.1654
657.4737
613.2738
652.9463
697.7197
682.7953
634.2906
547.4951
478.1206
515.6202
493.1205
493.1205
564.3699
553.12
601.8695
618.5624
507.8321
484.9223
523.1052
510.2885
491.0323

3344846
2512677
4924303
1493359
1090517
1801909
630912
117341
4599387
1276825
2289352
1342386
2211067
3662156
1089856
3247447
577226
5116989
1518056
451588
1170319
656012
2503597
1291101
585469
2000398
1160424
654674
341936
4677566
2113264
1070011
1630402
788722
8576550
1611368
855616
1398730
1303350
2305682
1106802
1617449
604062

0.247365
-0.13621
-0.08788
-0.08333
0.036206
0
0.009879
-0.07669
-0.08189
-0.07569
-0.04018
0.047866
0.005947
-0.10479
-0.06912
-0.0942
-0.09895
0.045416
0.004223
-0.09756
-0.01796
-0.01765
-0.04762
0.072072
-0.06076
-0.06417
0.021858
0.076471
0.158532
0.145098
-0.07273
0.045627
0
-0.12625
0.020339
-0.081
-0.02699
0.218045
0.047244
-0.07299
0.025117
0.039216
-0.08273

6

COMPARATIVE ANALYSIS OF STOCK PERFORMANCE OF TWO COMPANIES
12/1/2019
1/1/2020
2/1/2020
3/1/2020
4/1/2020
5/1/2020
6/1/2020
7/1/2020
8/1/2020
9/1/2020
10/1/2020
11/1/2020
12/1/2020

535.3215
577.6851
529.5446
282.1029
404.3796
332.1689
395.7143
410.5536
425.3929
390.2732
395....