INVESTMENT MANAGEMENT

UMAD5X-15-3

INVESTMENT REPORT 2017

Deepak Lalwani Idnani

Deepak.Lalwaniidnani@uwe.ac.uk
 Investment Report: Key Data
There is a detailed specification for the report format on Blackboard. Key elements are shown below

1. A summary tear sheet: This summarises all the key information of your report.

2. Performance and news analysis:

2.1 Calculate Abnormal Returns (!) Compare the company’s returns with that of the market as well as calculate the
company’s risk adjusted returns (ex-post !).
2.2 News Analysis: Identify news (which include earnings announcements, release of relevant economic data, analysts’
recommendations) which are relevant to the company’s share price movement as well as supporting your analysis in
the report.

3. Valuation:
3.1 DDM Valuation: Carry out the DDM valuation under the CAPM framework using the multi stage growth model.
3.2 Comparative valuation: Use PE, DY, PB and PS metrics to complement the DDM valuation.

4. SML analysis: The valuation results are presented using the SML.

5. Discussion on Valuation Methods: Discussion on the DDM versus market multiples to inform the client is
required.

6. Conclusion: This will demonstrate your understanding of the subject and ability to include the results in a
coherent summary and your own views and opinions.
 Investment Report: Format and Date
An example of the report format using Whitbread has been provided. In
addition the marking scheme has been specified in detail

Format: The report must be word-processed, cannot exceed 2,000

words and contains the following:

A summary tear sheet (not more than 1 page)

A main report (not more than 5 pages) to support your analysis based
on the analytical elements described above.

Submission date: Thursday March 16th 2017

Questions and advice: This will be provided at tutorials over the

remainder of the semester or contact your tutor by email. However no
questions will be allowed after March 9th 2017 when your focus should
be on writing up the final report.
Investment Report: Marking Scheme
Section of the Report Weighting

Tear Sheet 10%

Risk Adjusted Returns 10%
News analysis - firm-specific and systematic 10%
Multi-stage DDM valuation 20%
Valuation by other methods 10%
SML analysis 10%
DDM and market based methods discussion 10%
Conclusion (includes introduction and analyst
recommendation) 20%
Total 100%
 Data Sources for the Report
In this lecture there are examples of the format in which
your Investment Report should be produced.

The screenshots on the following slides for Whitbread have

been taken from the Bloomberg system. However it is not
compulsory to use this system or any other financial data
service provider. Alternative sources such as
Yahoo Finance
DigitalLook
ADVFN
will contain all the data that you need such as financial
statements, dividends, forecast earnings and the views of
investment analysts
Name of company:
Tear Sheet
Whitbread PLC FIGI: BBG000BRVH05
Market Price: 3940.00 GBp
Our Valuation: 3783.33 GBp Analyst Consensus Valuation: 4220.00 GBp Date: 7nd February 2017

Our Recommendation: HOLD Consensus: BUY: 36% HOLD: 47% SELL: 17%
GICS: Lodging and Restaurants
Company profile:
Whitbread PLC is a hotel and restaurant group headquartered in Houghton Regis, UK. The
company operates businesses in budget hotels, coffee shops and restaurants. Its largest division is
Premier Inn, with around 650 hotels and over 50,000 rooms. Its Costa Coffee chain has over 3000
shops across 30 countries. Its other brands include the restaurant chains Beefeater, Brewers Fayre
and Table Table.
One-year Price chart:
Remaining sections follow the template and comprises four
sections in separate data tables
Price performance – company and FTSE 100 for month,
quarter, half year and year
Key financial ratios – actual and forecast
Valuation metrics – both DDM and comparables such as PE,
Dividend yield and Price/Book.

Analysts consensus recommendations – Buy / Sell / Hold

Finally – your recommendation (Buy / Sell / Hold)
 Tear Sheet
Key financial ratios and forecasts of Whitbread PLC
Data as of 06-02-2017.
Adj. Beta* P/Book Op Margin Assets/Equity
Source: Bloomberg
Whitbread PLC
0.821 3.02 17.49 1.92

EPS1 DPS1 ROE2 PE DY3

FY 2016 2.16 0.90 17.89 17.62 2.25

Estimate FY 2017 2.45 0.99 17.86 16.06 2.29

Estimate FY 2018 2.59 1.09 17.15 15.23 2.32

Estimate FY 2019 2.74 1.21 17.05 15.01 2.35

*Beta calculated on Monthly Data of period 07-02-2015 to 06-02-2017

1 Trailing 12M values 2 Return on Common Equity 3 12 Month Yield.

In your report you must identify the latest dividend paid by the company
and estimated dividends for at least the next three years.

Bloomberg Command : WTB LN Equity [GO], FA [GO] => Custom Tab => <Enter
field> For example: “EPS”, “Dividends Per Share”, etc..
To DDM
 Sample Tear Sheets
Attached are examples taken from the Societe Generale report for Marks & Spencer plc (September 2010)
and from the city wire report for Whitbread plc (February 2017) to help you to get started.

Source: http://citywire.co.uk/wealth_manager/share-prices- Source: Societe Generale report for Marks & Spencer plc
and-performance/share-factsheet.aspx?InstrumentID=3360 (September 2010)
 Company Profile
Can be found in Security Description in Bloomberg. Required on
the Tear Sheet as well as useful for Introduction in the report.

Bloomberg Command : WTB LN Equity [GO], DES [GO]

 Plotting Whitbread and FTSE 100
Most systems allow the price of the share and the market index to
be shown on the same graphic

We Compare how
WTB correlates with
FTSE 100; pay
attention to the
time when the co-
movement breaks
down

We Plot a graph of “Total return Index Gross Dividends”, instead of “Last Price”.
“Last Price” will not take into account Dividends paid and it will not give us an
accurate comparison.

Bloomberg Command: GP [GO] ; 95 [GO]; Activate key events box

 Estimates and Consensus Estimates
Provides analysts’ current recommendations as well as past performance and
how the recommendations have changed

Bloomberg Command: ANR [GO] (Analyst Recommendations)

 Price performance and risk adjusted returns
* In price Performance,
remember to use “Total
return Index gross Dividends”
to take into account the
dividends paid instead of
“Last Price” for both the
returns of the Market (FTSE
100 or FTSE 250) and your
company.

* Use “Monthly Period” for

the calculation of Returns.
1 month Return of WTB on 30/12/16
calculation:
>?@A.CDE
!= − 1 = 9.01%
>CAC.FGC

1 month Return of FTSE100 on

30/12/16 calculation:
IA>A.IF
! = IGCC.?F − 1 = 5.37%

Remember that in the market index model we assume that Rf is equal to 0

!"#$%&'( = * + ,- + .(,012 − ,- ), and we use a ex-post alpha (CAPM / Jensen’s Alpha) as a
measure of risk adjusted return or abnormal return above the market return:

Risk adjusted return (45678) = company return – beta * market return

For example: Risk adjusted return (*:;<=)= 9.01% - 0.821*5.37% = 4.60%
Bloomberg Command: HP [GO] (Historical Price Table)
Where do we find Company Betas ?
In the previous example we used 0.821 value for BETA of Whitbread PLC. For your
assignment you could use a 2 year adjusted Beta on Monthly Data.

Remember to select “Total return Index gross dividends” in Data selection

and not “Last Price” to take into account for Dividends. Select “2Y” and
“Monthly data” as shown in the picture.

Bloomberg Command: WTB LN; Select Securities -> Whitbread PLC; BETA
(Historical BETA);
Go TO DDM
 Example of risk adjusted returns
Risk adjusted return (!"#$%) = company return – BETA * market return; (Assuming Rf =0)
Whitbread PLC FTSE-100 Numerical Risk
(%) (%) Calculation adjusted (%)

Jan 2016 -9.11% -2.49% -9.11% - (0.821 x -2.49%) -7.07%

Feb 2016 -1.98% 0.82% -1.98% - (0.821 x 0.82%) -2.65%
Mar 2016 0.99% 1.80% 0.99% - (0.821 x 1.80%) -0.49%
Apr 2016 -2.22% 1.42% -2.22% - (0.821 x 1.42%) -3.39%
May 2016 10.38% 0.31% 10.38% - (0.821 x 0.31%) 10.13%
Jun 2016 -17.09% 4.70% -17.09% - (0.821 x 4.70%) -20.95%
Jul 2016 10.51% 3.44% 10.51% - (0.821 x 3.44%) 7.69%
Aug 2016 8.11% 1.68% 8.11% - (0.821 x 1.68%) 6.73%
Sep 2016 -6.14% 1.80% -6.14% - (0.821 x 1.80%) -7.62%
Oct 2016 -7.69% 1.03% -7.69% - (0.821 x 1.03%) -8.54%
Nov 2016 -3.35% -1.99% -3.35% - (0.821 x -1.99%) -1.72%
Dec 2016 9.01% 5.37% 9.01% - (0.821 x 5.37%) 4.60%
You must use the FTSE 100 index and show the monthly returns for the share and
the index in 2016. If your company is not in the FTSE 100 index then you must
use the FTSE 250 Index values.
 Systematic news
Identify events that have an impact on all shares in the market and the
FTSE 100 Index

BREXIT REFERENDUM
RESULTS 24-06-16

Bloomberg Command: UKX Index; Select Securities -> FTSE100 Index; GP (Line
Chart); Activate key events box
 Example of firm specific news
Whitbread revenue call teleconference of Q3 2017 held on 26-01-2017
announced a slowdown in London hotels market. Significant negative (or
positive) news would be followed by underperforming (or outperforming) share
prices and negative (or positive) risk adjusted returns

Bloomberg Command: WTB LN; Select Securities -> Whitbread PLC; GP (Line
Chart); Activate key events box
 Company News in Bloomberg

Bloomberg Command : WTB LN Equity [GO], CN [GO]

 Example of firm specific news
Date News summary
25/10/2016 1H Premier Inn LFL sales are up 2.4% vs
9:55:33 estimates of 2.3%. 2Q Sales increased 2.7%.
Firm- The underlying pre-tax income reported was
specific GBP307m vs GBP302m estimates. However
Costa’s reported operating profit was GBP
64.6m vs estimates of GBP70.8m. WTB
reported that it expects to deliver in line
with full year expectations.
26/01/2017 Company L-F-L sales at its Costa stores
09:35:43 increased 4.3% in 14 weeks to December
Firm- 2016 compared with the same period last
specific year. However, the growth rates have been
slowing down over the past 2 years. In the
first half of 2016, L-F-L sales at Costa were
up 2.3% but this was a slower rate of growth
than the 4.4% increase reported over the
same period the previous year. The
company also reported a decrease of total
revenue per available room (RevPAR).
RevPAR at London hotels fell 6.5%.
Brief comments
WTB share price falls 4% in 1 day to
GBp3576.71 although reported results beats
analyst estimates. It is the biggest decliner
on the FSE100. Investors question the delay
of two large Premier In openings this year,
and believe it might be reflection of the
weaker RevPAR environment which might be
here to stay.
Your own words
The FTSE 100 leisure group has been under
pressure on multiple sides from smaller
competitors, with its hotel business
threatened by individuals renting out rooms
through Airbnb and artisan cafés tempting
away Costa customers. Growth have been
slowing down over the past 2 years and
investors think that this could be the first
signs of a turnaround in the coffee business.
Shares were down 5.9% to 3821GBp after
Thursday morning’s news. Your own words