FIN1101: Evaluate Qantas Shares - Finance Assessment
- Subject Code :
FIN1101
- Country :
Australia
Scenario
You have now completed your degree at USQ and fortunately, you landed a job with Portland House Group, a hedge fund in Melbourne! The fund specialises in trading stock and bonds and manages close to $2.3 billion of assets. You are an analyst in one of the teams and your job is to make a presentation to your team leader on the performance of the portfolio you are handling. The agenda has been circulated to all the team members and you need to conduct some preliminary analyses for the two- hour meeting. The good thing about the group is that they are aware that you are a fresh graduate and you have a mentor to assist you in your work.
Agenda Item 1. Evaluate Qantas Shares
Qantas has moved from a negative free cash flow of $126 million in 2015 to a positive $1,410 million in 2018. The progress over the years has fostered investors’ confidence in the airline. Qantas’ share price currently stands at $5.34 per share with 1.57 billion shares outstanding. The current discount rate for Qantas is 3.92% and the rate of growth of the free cash flow is expected to slow down to 2.00% per annum because corporations are now using WebEx meeting rooms instead of flying. Mentor’s guidance: In addition to responding to Agenda Item 1 above, your supervisor who has been your mentor in the past six months of your probation asked you to be really prepared by detailing your work in Excel sheet. Obviously, the head of the investment modelling division will be interested in knowing the value of Qantas using a perpetuity model and a Gordon growth model. He has been in this habit for the past three years. The 2019 data is not yet available, so your valuation will be based on data from 2018.
Agenda Item 2. Assess whether Portland House Group should Invest in Australian Government
Treasury Bonds or not?
The fund you are managing holds 20,000 Australian government treasury bonds. The 12-year Treasury bond expires in 2031 currently trading with a coupon rate of 1.5% p.a. paid semi-annually. The face value of the bonds is $1,000. The yield to maturity is 1.25 % (the cash rate as at June 2019). Your team leader wants to know the current price of the bond and the total value of the portfolio.
