Management in Context – Share Portfolio
For thirteen weeks from the 30th September 2002 we compiled a share portfolio of five major companies listed in the London stock market. The companies share prices were analysed in comparison to the FTSE 100 share index. The chosen companies for our portfolio were British Gas, Colgate Palmolive, mm02, P & O Princess and Selfridges. One percent handling costs and VAT at 17. 5% was deducted from the fifty thousand pounds we had to invest. The remaining balance was then divided equally between the five shares chosen.
We found that a number of different economic and political factors affected the price of the shares and the FTSE 100 share index. These can be seen below on the time line. 2. 1 Timeline The FTSE100 before 30 September The FTSE 100 index had been in decline dropping to below 4000 points by July of 2002. This was due to a global economic slow down and the knock on affects of September the 11th. The week before our project began shares prices rallied and prices were climbing. Week 40 The United States uses air strikes in Iraq’s air exclusion zones to try to resolve the weapons inspections crisis.
We acquire the five shares. P;O princess announce possibility of merger with Carnival line rather than that of Royal Caribbean. IF P;O break merger deal with Royal Caribbean they may face break fee of 62. 5 million dollars. The share price does not respond well to this news falling by 6. 5%. Week 41 Following Mon 30th, the Dow Jones index closed down 109 points or 1. 4% at 7,591, its lowest level for four years as weak company figures and falling consumer spending levels added to investor’s fears. London’s FTSE 100 also closed down 185. 4 points, or 4. 7%.
The losses, made September one of the worst months in recent stock market history. With US shares plunging and dragging major European markets down with them President George W Bush reached a deal with the leaders of the House of Representatives which paved the way for the use of force against Iraq. The FTSE 100 fell further after Tony Blair’s backing of President Bush and the idea of imminent war. On a note of optimism, the White House economic adviser Glenn Hubbard predicted an economic recovery in the next three months.
P & O princess announce that they are supporting Carnivals proposed take over rather than smaller rival Royal Caribbean’s merger. This is on the agreement that it becomes dual listed in both the US and UK. The earlier merger had been cleared the FTC but the new takeover bid may not. P ; O’s share price falls in response to this announcement. Week 42 Terrorist attack in Bali creates financial shockwave across global market, FTSE drops by 12 points. World stocks rallied by Friday, lifted by a strong performance on Wall Street and a rare burst of positive corporate news.
A round of upbeat company statements helped lift investors’ moods, while economic data appeased concerns over weaker consumer sentiment. The FTSE 100 share index enjoyed its strongest day in almost three months, closing up was up over 4% or 176 points at 3,953. In the US, the Dow Jones closed up over 4% or 300 points to 7,845. Despite the rally, market watchers warned that the following weeks would be difficult as the threat of an attack on Iraq grows. Colgate palm released news that worldwide unit volume was rising better than expected at 6. 0% and earnings per share were now 16%.
This meant a higher dividend return on each share and gave investors an ideal opportunity to buy more shares thus causing prices to increase. This sharp increase mimicked the FTSE and set the Colgate share price at i?? 33. 31 a share. Week 43 Bank of England governor Sir Edward George hinted that interest rates might need to be cut to protect the economy from the effects of falling stock markets. Gordon Brown faced a budget crisis as he declares UK growth to be slowing. Gordon Brown predicts growth to be 1. 5% rather than 2 %, speculators respond well to a more realistic prediction.
Colgate Palm US reports that cash flow continues to increase. Due to excellent top line product growth combined with a strong gross profit margin enabling an increase in advertising spend whilst still delivering a double digit return on share investments which enticed further investment in company stock Week 45 The US markets took a nose-dive following a profits warning from the tech giant Cisco Systems. Colgate achieves record sales with high net income and earning per share in the third quarter, thus reinforcing a strong profit margin and investor holdings bottom lines.
“1 Week 46 On November 6th 2002 MMO2 announced significant progress in two of its main markets, the UK and Germany. This was following the release of O2’s six month interim results showing a rise in the share price largely due to the lunch of its new multimedia messaging service. With sales of the ‘Sharp GX-1’ phone topping 4 million in Japan O2 announced plans to distribute the phone in Europe. The company reached an 18. 3 million customer turnover with November revenues reaching approx i?? 4. 5 billion.
O2 secured the new 3G license to enable picture messaging and the share price matched the fluctuations of the FTSE. Disciplinary action taken against O2 competitor Vodafone for their TV commercials displaying scenes of a sexual nature in the beginning of November also influenced the share price. British gases share prices go up after plans to increase taxes for the North Sea oil and gas industry came under attack. The Scottish Council for Development and Industry (SCDI) said the new tax regime was unstable and out of touch with economic reality.
The organisation also claimed that Chancellor Gordon Brown’s proposals were causing serious damage to investor confidence. The tax increase, since its announcement in the budget had caused British gases share value to fall dramatically. Oil and gas companies are also be affected by other increases, for example in corporation tax. The proposals were attacked by the industry, with the UK Offshore Operators Association (UKOOA) warning that 50,000 jobs were under threat. Week 47 November 13th: the FT stated Vodafone have announced bids to try and gain control of the French telecoms group Cetegel.
Vodafone attempted to buy a 44% stake in the company from long term telecoms group Vivendi. With the recent announcement of first half results showing a 4. 25 billion rise (41%) rise in the pre tax profits2. Obtaining the stake in the French company would secure a large part of the French market and pose a great threat to any other telecoms companies contemplating expansion through the French market and middle Europe. Vodafone’s shares rose almost 13% in London to close at 111p, a record high since May 20023 but MMO2’s prices seemed un-daunted. Week 50
Retailing giant Marks & Spencer poached Vittorio Radice, the chief executive of Selfridges, to join its main board with a i?? 1. 2m “golden hello”, Selfridges share price also fell sharply in response to the news. Week 51 December 12th 2002: CIBC analysts recommend Colgate as one of the top ten companies to invest in. Colgate continues to invest capital in cost-saving projects, while upgrading their systems, enabling them to reinvest their returns in the growth of the Company. This was their key driver in the continuous improvement in gross margin from 1984 to 2001.
Mmo2 Seasonal trends saw a dip toward December 10th with people buying fewer phones. Transco, British Gases network supplier came under attack after hundreds of people were left without gas for more than a week and say they are not being given enough compensation. Legal action was threatened by the residents of the area if more compensation was not offered up. Share prices of British gas in comparison fell, until the following week when the situation was resolved. Week 52 Retail shares fell because of worries about weak sales in the crucial Christmas period and weaker confidence for the year ahead.
Share prices dropped further when 29 British Gas service engineers in Cambridge staged a one-day strike on Friday over regional pay. They say it is unfair that engineers in some areas earn an extra i?? 500 each year. The workers want the allowances in Cambridgeshire, Hertfordshire, Suffolk and north Essex to match those in Bedford and Milton Keynes. British Gas said they had already reached an agreement with the majority of their workers on the pay issue. 5 Week 01 War in Iraq beckoned with Sadam Hussein defiant towards US and UK and the build up of troops in Kuwait. FTSE 100 rises as Christmas shopping has boosted UK retailer’s sales.