Investment Management - Institutional Investors in the New Financial Landscape - Case Study Example

INVESTMENT MANAGEMENT al Affiliation) Key words: al Investors, FTSE Introduction On June Travis Perkins was listed in the FTSE 100. Travis Perkins is one of the leading organizations in the home improvement market and in the builder’s market. The company is characterized as the main supplier in the construction and building market. The paper evaluates the responsibilities of institutional investors, board of directors, London Stock Exchange and Investment bank during the transfer process from FTSE to main index. Additionally, the paper the paper evaluated the Travis Perkins PLC performance in its industry. PART A Institutional Investor In the United Kingdom, the dominance of investment is regarded to be indirect. Indirect investment means individual investing their money in funds, which then use the money in buying shares and other securities. The majority of the shares issued in the economy are held in various ways of fund. The funds are termed as collective, institutional, insurance funds, pension funds, and mutual funds; are mostly the institutional investors (Blommestein & Funke, 1998). The institutional investors have dominated the securities market by Travis Perkins. For instance, three quarters of Travis Perkins is held on the base of institutional investment opposed to individual holders. The trend on the share ownership has increased from portfolio international diversification. It is suggested that the increase in the number of institutional investors led to an investment culture where investment has become the trend of various people. This is clear from the rising need of newspaper money section that converts an investment to entertainment. The institutional investors have a significant role in the transfer of the FTSE 250 to main index (Davis & Steil, 2001). They have provided funds for young business beyond the capability of the venture capital trust. The institutional investors have owned private firm; firms buying shares of small or new businesses despite having shares that are not tradable on the stock exchange. The money invested in those businesses is referred to as private equity. The firms having the private equity have become the co-owners of the organizations that they invest and taken an active role in the management of the company. The importance of the institutional investors is important since they provide funds to those firms. The private equity organizations put the funds together for their purchases while the investors provide the funds to them (Goldsmith, 1973). According to the liquidity theory of asset pricing, the stock market major drivers are the liquidity amount of the investment. Basically, when people have enough money for investment, investment will be higher and thus the share prices will be pushed up. The money is normally created when loan of funds is made. During the transfer of indices, the institutional investors are important during the process because the share proportion held by the organization has importance for the rate of reinvestment. Although many investors might use the receipt of share sale for other purposes other than purchasing the shares, the institutional investors use a higher proportion of the sales to buy other shares. So, assuming the institutional investors hold a higher proportion of the stock market, the amount of reinvestment will be much higher and thus the investment value. Therefore, when the institutional investors rises, the impact of liquidity changes in the stock index level will also increase. The institutional investors serve in magnifying both the downward and upward fluctuation in the stock indices (Boubakri, 2011). Investment Bank During the process of transfer, the investment bank raises funds for Travis Perkins in the market, and they advise the company on the acquisition and mergers. This type of banking is also called corporate finance. In the investment banking lucrative area, procedure of combining the syndicate of financial institutions, underwriting, and running a book is the same as providing equities and debt for a company. The investment bank has merged the origination activities of their bonds and equities. The investment bank has provided the Travis Perkins the advice on the acquisitions and mergers. Within the framework of the bank, the traders of Travis have dealt with other banks through trading securities, money brokers, proprietary traders, and those of investors. The sales people in Travis Perkins PLC have managed the accounts of investors (“The European Investment Bank: the European communitys financial institution”, 1993). When Travis Perkins PLC is brought to the market, the company will purely be underwritten. The underwriters in this case will be the investment bank. The investment bank is important during the transfer process since they guarantee Travis Perkins the price for a certain number of equities to the issue of fee exchange. When the deal is riskier, the fee for the investment bank also becomes higher (“European Investment Bank”, 1978). The book runners and issue set the price of the issue at a maximum level that is accepted by the institutional investors. When the deal of the company is oversubscribed, the price quoted by the investment bank becomes low. This is helpful since it creates demand, including the secondary market trading. When the company is under pressure, the investment bank quotes the pricing deal for demand which can be created. The pricing of the company is affected by the market conditions and the interest perception that the PR, issuer and book runner whips up. With the involvement of the institutional investors, the book runner prices the new issuer at higher price. This is due to the publicity and extra take up that is generated. The institutional normally hold the new issues after selling is done since they are not informed adequately. Investment banking has remained to be a fascinating source for the company, with the fluctuation of vision being prominent. Therefore, investment banks are important when placing and opening of the offer (“The European Investment Bank and the problems of the Mezzogiorno”, 2007). The dual approach from the investment banks are used in placing shares in the Travis Perkins PLC. The securities are placed provisionally with the company, but subjected to the claw-backs of the shareholders during exercising their right in taking up of shares under the offer (“The European Investment Bank: the European Unions financing institution”, 1996). Board of Directors Travis Perkins PLC Board of Directors has contributed heavily during the process of index transfer. The board of director provides an oversight in ensuring the investor interest is increased (“The Board of directors: new challenges, new directions”, 1972). The index transfer process is important since it enables the investors to look at what Travis Perkins does, and their motivational force behind their meteoric rise. The board of Directors ensures that the company supplies the material for DIY enthusiasts and professional builders across the various sites in the United Kingdom. After the financial crisis the board of directors ensured that there is sustained and strong progress since the occurrence of the financial crisis. The board also ensures that the new debt is reduced from the previous years (Pederson, 2007). The board equally ensures that the financial strength of the company has served well. With the help of the decisions of the board, Travis Perkins has generated its growth through selective acquisitions and organically. The company has ensured that the strong housing market and increased house prices are fundamental in the sales of Travis Perkins and the guidelines announced in the financial statement has stimulated the housing market and this has left the company to be placed well in the United Kingdom economy recovers, thus increasing its index (Holmes & Butterworth, 2001). The London Stock Exchange We normally talk of the LSE (London Stock exchange as one stock market. The market is actually split into multiple components starting from FTSE 100 to AIM. There are over 2000 firms listed on the London Stock Exchange an example being the Travis Perkins. The company’s total value on the LSE is over 2 million pounds (Quinn, 2000).Not all companies listed on the stock exchange come from the British. The main markets for the exchange are a FTSE 100, FTSE 250, FTSE 350, FTSE Small Cap, FTSEAll-Share, and FTSE Fledgling Index. The London Stock exchange played a crucial role in the transferring process from FTSE to the main index (“People and productivity: a challenge to corporate America: a study”: 2002). The London Stock Exchange allowed Travis Perkins PLC to raise capital by offering them to institutional investors and collection of private investors. Their role included; bringing Travis Perkins and Institutional investors together, enabling the issuers and Travis Perkins to raise new funds, facilitation of the investment process to subscribe the shares, and providing capital and funds to Travis Perkins and investors the necessary capital. Other roles of the London Stock Exchange include facilitating the securities trading after IPO, purchasing and selling the securities between the investors, organizing and overseeing an efficient and fair request. The stock exchange also helps Travis in ensuring that the company has discovery processes with efficient prices. In addition, the London Stock exchange provided timely and accurate trading and discloses information about the company in informing the trading of the private investor (Steel, 2009). Part B This section outlines the financial status of the company. The current revenue collected is over 5 billion pounds with yearly increment of 6.3% and 5% on similar basis. The company recorded financial increment from 267 million pounds to 330 million pounds estimated to be 10%. The adjusted increment of profit before tax was 35 million pounds similar to 12.4% to 321 million pounds whereas after taxing up it was 16 million pounds to 265 million pounds. The company’s adjusted EPS up increased by 14.3% to 103.1p. Travis Perkins PLC recorded final dividend up 24% to 21p posting a full annual dividend of 31p. The company’s net debt dropped by 104 million pounds to 348 million pounds. Generally the company attained the revenue instrument in almost all the divisions with the group posting a strong overhead control throughout. The calculated operating range increased by 0.11pp to 6.8% .The Company managed to open up 43 new branches and 15 implants inclusive of the 9 tool stations openings within the Wickes. It also acquired Solfex and an online heating products distribution business The building material market outlook has shown great improvement since coming out of recession in 2013 through the government help. It has shown consistency and growth in 2013 and this has prompted a solid and successful year. The biggest improvement was first posted by the merchant business as it picked during the second quarter whereas the consumer market recorded a drop until the end of the year that they began to show some improvement (Goudie & Meeks, 1986). Turnover and operating margin posted an increment with well managed cost but on the other hand gross margin dropped slightly due to combination of targeted investment in prices to grow volumes and variations in the mix of product sold and competitive pricing. Property profits on disposal completed at the end of the year, sourcing profits and income from short term supply contracts boosted slightly the Group’s benefits. The group announced a new divisional structure in September 2013 which will report on the new divisional basis starting January 1 2014 (Neely, 2002) The group had a successful year, 2013 despite the poor weather conditions at the beginning of the year. The continued network expansion extra trading day in the mercherdising,plumbing and heating divisions and 5% increase in the similar sales among others, saw the group total revenue increase by 6.3% to 5.1 billion pounds from 4.8 billion pounds in 2012 (Margolis & Walsh, 2001). The group’s sales started improving from April courtesy of the improving weather conditions compared to the beginning of the year and the increased confidence levels from customers. The government aid to purchase the scheme, increased housing transactions and house prices is also attributed to the positive trends in all divisions by the end of the final quarter of 2013 (Camerinelli, 2009). The first four months of the year saw the group posting poor sales resulting to a deflation of approximately of 1.5% in the first half. The adverse weather conditions at the start of the year led to the aggressive price discounting when customers annual contracts are negotiated. The appropriate cost management helped to see off a slight gross marginal decrease, hence resulting in adjusted operating profit increasing by 6.7% to 348 million pounds as compared to 326 million pounds in 2012 and the adjusted operating margin growing by 0.1 percentage point to 6.8 % as compared to 6.7% in 2012 (Drake & Fabozzi, 2006). The Board of Directors has remained confident in the prospects of the company. The company believes that it should go on with progressive policy of increasing the dividends than the revenues attained to cover the dividend ratio between 2.5 and 3.25. The Board of directors has been pleased to recommend a dividend of 21p, which is a 24% increase from those recorded in 2014. The figure has reduced the dividend cover three times the adjusted earnings per share. The total expense for dividends in 2013 was declared at 75m pounds (Fukao, 1995). Market. The company supplied the majority of their products to RM markets considered to be resilient, with most of the company’s turnover generated from the material in the most recent market. A crucial underway has been on course for the first four months of 2013. The action e government to encourage the house buyer via initiatives like Help to Buy scheme has assisted in easing credit supply is the outcome that the housing transactions has shown a growth that is encouraged in the entire 2013. The recent indicators show that there is consistent improvement across the industries in which the company operates (Margolis & Walsh, 2001). Despite an improvement in the mortgage, there has been an increase in the transaction of housing. The secondary transaction of the housing has followed the conventional trend. Just like the approval of the model, the secondary housing transactions have remained below the maximum values recorded in both 2006 and 2007. Generally the increase in the approval of the mortgage has led to an increase in the housing transactions. The rise in the secondary transaction of housing in 2013 appeared to have taken e trend. The confidence of the consumers has really improved during 2013. The confidence return has still remained fragile with clients circumspect on how much they should spend and where and when they need to invest in homes (Hill, 1992). After reviewing the risk assessment and the company’s forecast and making other external inquiries. The directors have come up with a judgment during financial statement approval. That the company has adequate resources to continue to be inconsistent in the future. For this reason, the company has continued adopting the going concern ring the preparation of the financial statement. Arriving in the conclusion, the company has considered forecasting their own revenue. Additional e is reasonable, charges in the performance of trade. 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