Investment Strategies andCorporate Finance of Mark and Spencer Plc - Case Study Example

Interim Individual Share Portfolio Review The choice of the company that am going to invest my £ 10 000 for the purpose of purchasing shares is Mark & spencer PLC. M&C is as an international retailer with 1051 locations across 34 countries. It is involved in the selling clothing, footwear, gift, home furnishings and foods. This diversity makes any investor interested ( De Long, Shleifer, Summers and Waldmann, 1990). The overseas branches are franchised to local partners making the group to have a ‘sense of belonging’ and thus a strong market share in the foreign countries. M&S’s share index growth, begun in the year 2006 under the leadership of Stuart Rose. In the year 2007 Mark & Spencer share was at 743p, a lot of optimistic is there that in the future it will hit that mark. I also settled for Mark and Spencer after comparing the annual reports and prospects of different companies’ that are quoted in the London Stock Exchange. The financial ratio; dividend per share, dividend yield, PE ratio and earnings per share were promising as compared to the overall market (London Stock Exchange). It is very prudent for any investor to analyze any company that he/she wishes to invest in using PEST analysis. PEST analysis provides a clear image of the variety of forces at work around an organization. It will evaluate the business’s market and potential according to external factors; political, economic, social and technological (Brealy and Myers, 1991). Political factors have a very huge influence to any form of business in terms of regulation, and the spending power of consumers. Marks & Spencer is located in the UK, which is considered as one of the most stable country in the globe. It has also invested in other politically stable countries in the Europe and some states in the USA. In terms of regulation the United Kingdom is considered to have the most attractive and efficient tax system in the developed world, as the corporate and personal taxes are practicable. Considering the economic factors, United Kingdom practices an open economy which is ranked among the fourth largest in the world. The fiscal and monetary policies are well managed making the economy to expand each year, minimal inflation rate are rarely experienced. Marks & Spencer in relation to economic factors of UK are favorable. Both the short-terms and the long-terms are conducive for the organization. Despite any economic issues such as inflation, interest rate, GDP or employment levels Mark and Spencer will continue to make sales as it deals mostly with household goods which are basic needs such as food and clothing. It is important to note that Mark & Spencer is operating in a ‘healthy environment’ thus disposable income is at large on the products of the company. The fact that Mark & Spencer operate in more than 30 territories, it is evident that the company is operating in a diverse culture. This makes the socio-cultural arena to be wide for the company. Mark & Spencer has taken this socio-cultural factor by trying to incorporate products that suits the culture of the countries that it has invested in. the taste and preferences have been customized in every country to help keep up with competition in those countries. Technology is vital for competitive advantage and it is an important driver of globalization. Mark & Spencer utilize up - to- date technology that helps it either to improve its image of face out any necessary competition from its competitors. It has also made it possible to incorporate technology in terms of product promotion, this technological advances that the firm has made in recent time are with no doubt for business which will make the share price to go up in London Stock Exchange. Mark & spencer share price in the months of February, March and April (Fig #1) The chart above illustrates the growth of Mark & spencer’s share price for three months in London Stock Exchange. The month of March recorded the highest with the highest being slightly above 500p. The fluctuation in this chart can fetch huge returns if an investor is smart in predicting future growth ( Berk, Green and Naik, 1999). The amount of money that is to be invested in this company is £ 10 000. Suppose the shares were bought on 2/3/2014 at 469.7p per share that gives around 21 shares (Appendix 1). If the share were to be sold on March at 500p per share, the £ 10 000 would fetch a profit of £ 640. This is just one month. The shares of the company are prone to rise in future as compared to other stocks in London stock exchange. One of the product line that Mark & Spencer deals with, food, is continuing to well as compared to supermarket rivals that face price pressures. Comparison of Mark spencer with other quoted Company in London Stock Exchange (London Stock Exchange). Debenhams: it is a company that has been deteriorating and any investor has no faith in it. This is making the chief executive officer to work on its recovery tirelessly. Reports have indicated that Mike Ashley’s Sport Direct is pushing for Debenhams to stock its own clothing. The profits have also been declining at a very high rate in the company. RSA Insurance remains a high-risk buy; the company has recently completed a rights issue to prop up its finances after making huge losses at its Irish arm. There are reports of decline in profits improper accounting issues. Barclays bank could be my other option but it is greatly affected by interest rates in any oversees countries. The rates are set by the government and it is very unpredictable considering the fact that the competition in banking is too high. Final Individual Share Portfolio Review February analysis The month of February the share opened with £ 469.7, considering that the previous year the share was doing well attraction to it was inevitable. This is the amount that the share was bought with the £ 10000. It was promising as it recorded highs of £ 473. The business of stock requires so much patience and analysis. From the interim it was deduced that the share had recorded highs of b £ 743 in the year 2007. With this kind of statistics speculation has it that the share price can return to that level. One week later the share price increased to £ 475.7 at its highest this was an increase of £ 6. This seemed promising for that week; this was dated 02/10/2014. The week that followed the share opened with £485.6 again this was promising as it was another increase from the principled investment of £ 469.7 per share. The following week was the third week of February. The share opened with another increase of from the previous week, it opened with £ 488 and closed at £ 489.4. From the initial investment of £ 469.7, this is an increase of £ 19.7 per share. In percentage form it is an increase of 4.02%, a very attracting commission as compared to most of the securities in the London Exchange Market. The fourth week of February 24/2/2014 saw the share open at £ 500.9. This is an increase from the previous Weeks’s open. The share had increased with £12 from the previous opening. Considering the purchase of the share it had increased with about £ 30. It the share had to be sold at this particular time it would have fetched a profit of £ 646 (Campbell and Viceira, 1999). March analysis The month of March it seemed the trend the share price again raised, with an opening of £ 504 and highs of 505.5. Again this is an increase of £ 35.3 per share. This could again fetch a profit of £ 742.3 if they were sold in the stock exchange market at that time. The following week that began on 3/11/2014 saw the share decline, it decline to £ 480. This is a decline of around £ 25 per share. Analysts credited this decline due to fall in market share of clothing. The share could also make a gain if again it was sold at this price despite the decline as the purchase price is £ 469.7. The following week started with the share recording another decline, the date was 3/18/2014 and it recorded an average of £ 460.8. This is a worst scenario considering the purchase price of the share. If the shares were to be sold at this date there could be a loss of around £ 9, and this is about a loss of £ 189. The third week which started on 03/25/2014 recorded yet another decline as compared to the previous opening of the share in the preceding week. The share was at around £ 454. Considering the purchase price of the share this was a decline of £ 16. This decline can’t bring any smile on any investors face. The month of march that recorded a consistency decline from the first week closed the share price at 31st with the highest share recorded at £ 455.9 (London Stock Exchange). April analysis The month of April started at with again the share declining, on 04/1/2014 the share recorded at its highest with £ 460.9. Again considering the purchase price the share had declined and it could make a loss if it was sold at this time. The second week of April that was dated 04/08/2014 saw the share record at its highest £ 453.9 this again is not promising considering the value in which the share was purchased. The share could fetch a loss of around £ 15. The strength of the share seems to be declining each passing day. During the following week that was on 04/15/2014 the shocking of the share decline becomes a reality this time closing at £ 416.6 this was discouraging as this is a huge loss. The loss here could be about £ 1050. The last week of this April saw the share start to gain value as on 22nd of April, 2014 the share had closed to about £ 442.3 from £ 416.6. This shows promising increase in the month of May and the share can gain value ( Berk, Green and Naik, 1999). Rationale for the share’s trend The share can be attributed to fall in price due to the decline in its clothing line. Women’s’ wear are very important as they draw more sales that male wear and the month has recorded not encouraging in this line. The profit was also influenced by discounts and promotions that were not favorable. The share price will seem to come back to an attracting level if the clothing sector will be fixed and this makes the investors to hold on to it. This concurs with statements from the Chief executive officer, Bolland, who has pledged to revamp clothing sale in Mark & Spencer retailers. There are is pledges to improve this by improving style and online offering (Daniel, Hirshleifer and Subrahmanyam, 1998). Analysts like Jamie Merriman, said that the company’s main customers who are children and women are considering the firm to be too expensive. The previous month saw the share to increase week after week as there was a lot of demand for clothing, this can be attributed to the Easter holiday that was upcoming. The rise of the demand for the shares can be attributed to the release of trading statements which attracted more buyers in the stock exchange. Comparing the overall stock exchange the month of March M & S was one of the top risers on the FTSE 100 Index following the release of the trading statement. Mark spencer is really doing well in the overall stock market as most of the top 100 companies are at their worse (Brealy and Myers, 1991). The segmentation of the products in mark and spencer has been an ace in their operations. While the clothing line has been experiencing problems, the company has managed to maintain its market share. It has also been able to revamp its position after their drop in shares. This can be seen by the strategies they set to raise the prices of their shares again. For instance, with the decline in the shares of the company, they are focusing on launching a new strategy which will concentrate on providing high quality clothes which a more fashionable and will provide satisfaction to their customers and especially those around their 40s and at the same time, be attractive to their younger clients. This will provide the exposure of the company to new designs which will increase the market of the cloth line and thus increase the share price ( Demirguc-Kunt and Huizinga, 1992). Mark and Spencer also has the potential of raising its share price in the future due to redesigning and renovating their logistics as to comply with the advanced technology and new internet frameworks which will enable their shippers to shop an place their orders online. This will enable them to compete healthily in the market as a result of the heavy advancement of technology in shopping. This approach will be very attractive to their shoppers especially the young shoppers who are more attracted to the clothes displayed by different stores online (Brealy and Myers, 1991). Work cited Daniel, K., D. Hirshleifer, and A. Subrahmanyam. Investor Psychology and Security Market Under- and Overreactions. Journal of Finance 53:1839{85. 1998. Print. De Long, J. B., A. Shleifer, L. H. Summers, and R. J. Waldmann. Positive Feedback Investment Strategies and Destabilizing Rational Speculation. Journal of Finance 45:379{ 395. 1990. Print. Berk, J. B., R. C. Green, and V. Naik. Optimal Investment, Growth Options, and Security Returns. Journal of Finance 54:1553{1607. 1999. Print. Campbell, J. Y., and L. M. Viceira. Consumption and Portfolio Decisions When Expected Returns Are Time Varying. Quarterly Journal of Economics 114:433{95. 1999. Print. Brealy, R.A. and S.C. Myers. Principles of Corporate Finance, 4th edition, McGraw- Hill, New York. 1991. Print. Demirguc-Kunt, A. and H. Huizinga. Barriers to Portfolio Investments in Emerging Stock Markets . World Bank Working papers WPS 984. 1992. Print. Appendix 1 DATE CLOSE OPEN HIGH LOW 04/22/2014 442.3 435.7 442.8 435.4 04/17/2014 434.5 427.7 439.5 427.4 04/16/2014 427.7 420 427.7 419.3 04/15/2014 416.6 429 431.8 415.9 04/14/2014 426.7 433.4 435.4 425.5 04/11/2014 435.5 437.7 440 431.6 04/10/2014 442 469.8 471 438.1 04/09/2014 456 454.6 460.0834 452.9 04/08/2014 453.3 451.1 453.9 441.6 04/07/2014 452.9 458.6 460.4 449.8 04/04/2014 461.9 463.6 471.2 460.8 04/03/2014 471.6 469.9 475 469.9 04/02/2014 469.9 460.1 472.4 460.1 04/01/2014 459.8 452 460.9 452 03/31/2014 451.5 455.9 455.9 450.2 03/28/2014 453.7 457.2 461.4 453.1 03/27/2014 455.1 457.4 459 453.8 03/26/2014 459.2 455.7 461.1 455.5 03/25/2014 455.3 454 458.6 451.8 03/24/2014 454 459 461.9 453.3 03/21/2014 459.7 471.8 472 459.7 03/20/2014 471.2 469.9 475.8 465.3 03/19/2014 472.6 469.1 475.7 466.9 03/18/2014 467.4 461 472.7 458.9 03/17/2014 466.3 460.8 470.9 458.8 03/14/2014 461.3 455.6 464.5 455.6 03/13/2014 458.8 467.8 468.8 458.5 03/12/2014 473.6 477.6 482.9 472 03/11/2014 480 481.9 482.4 476 03/10/2014 481.5 487.9 488.6 479.4 03/07/2014 488.4 496.4 496.4 486.5 03/06/2014 496.8 503.5 505 496.7 03/05/2014 503 503 508.5 502.5 03/04/2014 504 502 505.5 501 03/03/2014 499.9 496.2 501 494.2 02/28/2014 503.5 502.5 505 499.3 02/27/2014 502.5 500 504 493.5 02/26/2014 502 510.5 512 500.5 02/25/2014 511 506.5 512 502.5 02/24/2014 505.5 500.5 509.5 497.9 02/21/2014 501 506 507.5 498.5 02/20/2014 503.5 498.6 504.5 498 02/19/2014 501 501.5 508 499.7 02/18/2014 496.3 495.4 496.8 492.1 02/17/2014 494.4 489.9 496 489.9 02/14/2014 490 485 490 483.9 02/13/2014 484.9 489.6 490.8 481.1 02/12/2014 489.4 488 492.9 486.4 02/11/2014 485.6 473 486.9 473 02/10/2014 470.3 472.8 475.7 469.5 02/07/2014 472.5 472.4 475.5 470.3 02/06/2014 472.7 463.1 473.9 462.1 02/05/2014 462.2 463 465.8 460.2 02/04/2014 464 465 469.7 462.9 02/03/2014 467.9 469.7 473.8 467.3 Read More