Aveng - Financial Management
Financial risk management theory
THE INFLUENCES THEREOF ON VALUE CREATION FOR THE SHAREHOLDERS OF AVENG GROUP
SANRIE STEENKAMP
Sep 2012
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Executive Summary
The last 10 years financial data were analysed and evaluated to identify all the risk that has an influence on the share price. The market, industry and environment has been assessed and indicated where the risk areas lies.
Growth in sales was only 1%, while cost of sales was up by 1.85%. This had a negative effect on the growth of the operating profit margin. Capital gains of Aveng’s shares were 26.98% as to the 20.60% of the market; however beta was calculated at 1.53, which indicate that the share has more risk than the market.
Using the capital gains model is was established that the share is currently overvalued and that it will trade at 48.34 within five years at a 7% growth rate.
Table of Contents
Table of Contents 2
1 Introduction 3
2 Assessment of Financial Risk theories, the history of the risk situation and the effects there off on the share price 4
2.1 What is Financial Risk? 4
2.2 Ratio and Growth Analysis 5
2.3 Stand-Alone Risk Assessment 6
2.4 Market Risk Component 7
2.5 Capital Pricing Model and the Securities Market Line 7
2.6 Influence on Future Share Prices 8
3 Influence of External environment on future Risk of Return situation 8
4 The Management of some observed Risk Creating Factors and its influences on future Share Prices 10
5 Conclusion 10
6 References 11
7 Appendixes 12
7.1 Appendix 1 – Abbreviated Financial Statements 12
7.2 Appendix 2 - Comments on Ratio Analysis 13
7.3 Appendix 3 – Free Cash Flow Analysis 14
7.4 Appendix 4 – Ratio and Growth Analysis 15
7.5 Appendix 5 – Stand-Alone and Market Risk Calculations 20
7.6 Appendix 6 – Expected and Required Rates of Return 21
7.7 Appendix 7 – Future Share Price Calculations 23
Introduction
The Aveng Group is the largest infrastructure
THE INFLUENCES THEREOF ON VALUE CREATION FOR THE SHAREHOLDERS OF AVENG GROUP
SANRIE STEENKAMP
Sep 2012
[pic]
Executive Summary
The last 10 years financial data were analysed and evaluated to identify all the risk that has an influence on the share price. The market, industry and environment has been assessed and indicated where the risk areas lies.
Growth in sales was only 1%, while cost of sales was up by 1.85%. This had a negative effect on the growth of the operating profit margin. Capital gains of Aveng’s shares were 26.98% as to the 20.60% of the market; however beta was calculated at 1.53, which indicate that the share has more risk than the market.
Using the capital gains model is was established that the share is currently overvalued and that it will trade at 48.34 within five years at a 7% growth rate.
Table of Contents
Table of Contents 2
1 Introduction 3
2 Assessment of Financial Risk theories, the history of the risk situation and the effects there off on the share price 4
2.1 What is Financial Risk? 4
2.2 Ratio and Growth Analysis 5
2.3 Stand-Alone Risk Assessment 6
2.4 Market Risk Component 7
2.5 Capital Pricing Model and the Securities Market Line 7
2.6 Influence on Future Share Prices 8
3 Influence of External environment on future Risk of Return situation 8
4 The Management of some observed Risk Creating Factors and its influences on future Share Prices 10
5 Conclusion 10
6 References 11
7 Appendixes 12
7.1 Appendix 1 – Abbreviated Financial Statements 12
7.2 Appendix 2 - Comments on Ratio Analysis 13
7.3 Appendix 3 – Free Cash Flow Analysis 14
7.4 Appendix 4 – Ratio and Growth Analysis 15
7.5 Appendix 5 – Stand-Alone and Market Risk Calculations 20
7.6 Appendix 6 – Expected and Required Rates of Return 21
7.7 Appendix 7 – Future Share Price Calculations 23
Introduction
The Aveng Group is the largest infrastructure
References: Aveng Group Integrated report. 2011 Baltagi, Badi H Keynes, J.M. 1936. A General Theory of Employment, Interest and Money. London: Macmillan, Chap. 12 Megginson, W.L., Smart Standard Bank. 2012. Trading Statements, Aveng Group Appendixes