Corporate Financial Management

Coursework: AG Barrplc

You are a manager of the Amicable Pension Fund (APF) which owns 3 million of the ordinary shares of AG Barrplc, a UK publicly-quoted company listed on the London Stock Exchange. The company's ticker symbol is BAG.L.

The fund's shareholding inAG Barrplc now represents more than 5% by value of the pension fund's total portfolio. In view of its significance within the portfolio, the trustees of the fund have indicated that they would like to review the prospects for the group and its shares at their next Board meeting on 31 March 2018. The review will conclude with a decision as to whether the shareholding in AG Barrplcwill be maintained. You have therefore been asked to prepare a report for that meeting.

Information available

The annual reports for the last FIVE years can be found on AG Barr's corporate investor web page

The key pages in the annual report for the year ended 28 January 2017 are:

Chairman's Introduction Page 4
CEO Review Page 8
Financial Review Page 26
Audit report Page 78
Financial Statements Page 81

Other information including EPS forecasts, historical share price data and charts are available through various financial web sites.

Students are also encouraged to access other sites, including the company's own web site, as sources for useful information.

REQUIREMENTS

You are required to write a report (2500 words +/- 10%) to the Amicable Pension Fund (APF) as detailed above. This report should address specific aspects and these are detailed below, however you should treat these areas as a guide for theminimum we expect to see covered.

It is also anticipated that you will highlight other important aspects and give depth to the analysis.

1. Please structure your report as per the main headings detailed below. As you will see from the marking guide, your report will be marked according to these sections so please ensure you adopt the same format.

2. You must include a word count at the end of your report.

3. Use the weightings below to gauge how much you should write for each section. Remember calculations and figures do not form part of your word count so most of your words will be in sections a, b, c, g, h and m.

4. All ratios used in the report must be calculated and not taken from the annual report or other sources (with the exception of EPS). Please show the workings for any calculations carried out. The ratios should be included in tables within your report but the working may be included in appendicesif you think this helps the presentation. (there must be clear crossed referencing between your report and any appendices).

STRATEGIC DIRECTION

a) Outline the main activities of AG Barr plc and the key features of its strategy.

b) Identify and comment briefly on what you believe are the future business opportunities and risks facing the company .

FINANCIAL PERFORMANCE

c) Use all the figures calculated below in parts d) to f) and any other information from the annual report to;

i) Comment on AG Barr plc's operating performance over the period, and
ii) Identify and comment on the company's current financialstrengths and weaknesses.

You should consider the impact ofANY exceptional items when undertaking an analysis of AG Barr's financial performance.

d) For the five years 2013 to 2017, use a table(laid out starting with 2013 in the left of the table) to show the absolute figures for:
1. Revenue, (before exceptional items)
2. Gross profit (before exceptional items)
3. Operating profit, (before exceptional items)
4. Basic earnings per share (before exceptional items)
5. Total dividend paid per share.
6. Gross profit margin (%)
7. Operating profit margin (%) and

You should calculate:
i) The annual percentage growth (%)2013/14,2014/15 ,2015/16 and 2016/17
ii) The average annualised percentage increase (also known as compound annual growth rate )

e) Calculate the cash conversion cycle using the year-end figures for each of the years ending 2016 and 2017.

f) Calculate ratios (two or three should be sufficient) to measure the financial risk of the company for both the years ending 2016 and 2017.

EFFICIENT MARKET HYPOTHESIS

The recipe of IrnBru, AG Barr's main product,has been a well-kept secret, known only by a handful of people since the company was founded in 1875 and has been instrumental in the success of the business.The Boards recent announcement that the recipe will be changingin response to the introduction of a sugar tax in the UK has led to consumers stock piling the drink.

g) With reference to each of the three forms of stock market pricing efficiency discuss how the above information would be incorporated into AG Barr's share price.

h) With reference to the Efficient Market Hypothesis evaluate the evidence against the semi strong form of market efficiency.

VALUATION

i) Using the annual report for the year ended 28 January 2017 and your knowledge of the business estimate a "fair" share price for AG Barr plc.using the following valuation methods:
i) Net asset value per share
ii) Dividend discount model using CAPM

Compare your answer with the closing share price on 28 January 2017.

You must also explain fully any assumptions you make and give justification and sources for all the figures usedin the model. [Hint: Pages 700 -715 and 724 - 736 of Arnold should prove helpful] Please note that you do not have to calculate the beta for AG Barr (although you can if you want to ) however you must obtain this from a reputable source(s) and discuss its limitations.

j) Evaluate the usefulness and limitations of the valuation methods used above.

SHARE PRICE PERFORMANCE

k) Using the closing share price on 28 January 2017 calculate the P/E [use the reported basic EPS on the income statement] and the dividend yield.

l) Calculate and comment briefly on the absolute share price performance, and the performance relative to the FTSE index, of the shares of AG Barrplcbetween1 February 2016 and 28 January 2017(you must include a graph of the share price and the index.)

m) Using all the information in your report recommend about what Amicable Pension Fund (APF) should do with regard to its investment.

PRESENTATION AND REFERENCING

The report should be neatly typed (Arial font size 12) and presented in an appropriate style and language. Referencing and bibliographies should use the APA System (name and date).

Attachment:- Other information.rar