AMAYSIM Limited: Analysis And Recommendation For Investment Portfolio

What is their calculated beta (β) for your company?

In this report, AMAYSIM Limited listed on the ASX is selected for the purpose of study. Before investing in a particular company it is important that the investors needs to have a crystal clear view of the company’s functioning. This stretches from the ratio analysis to the stock movement because one factor does not decide the functioning of the company. Therefore, to understand the performance of the company, a comprehensive examination of the various factors is evaluated. The scenario of the company depends on the acts of the company. The company also tried to indulge into the business sector with the help of merging with the Australian broadband services private limited in August 2016 which have helped them a lot in order to accelerate the broadband services strategy and then create a leverage of their status in the market. Also in the year 2017, the company have decided to use new marketing techniques in order to enhance the broadband services by improvising new unlimited data plans, no lock-in contracts, no activation fees and no expenses to be incurred while switching plans.

The AMAYSIM Limited Australia is a multiversity business that has been based on the innovative technology and the main focus for them is to provide the best experience to their customers. The company deals in the business of light and LED business model in which the customer plays a very important role and no contracts are being taken so that the prices can be transparent for the mobile devices, Broadband, and energy. After the company has launched the BYO mobile services in the year 2010 it has observed use growth and the mobile subscriber base have come up to approximately 1.07 million and those leading them to become one of the largest mobile operators in Australia (Amaysim, 2017).

AMAYSIM Limited brand is powered by the Optus 4g+ network and is said to have one of the best customer bases because of the top-notch service they have been providing them for years. They make attractive offers to the customers by making simple and amazing mobile-first customer experience platforms that are easy to understand and also very price efficient so that major groups of the society can buy the product without hesitation (Parrino et. al, 2012). The customers have been given the service in which they are able to contact the care service centre whenever they want so that the customer will not face any problem and also give a good review for the product (Amaysim, 2017). The main focus of the company is to improve the Technology and the customer base that will help them to grow with the help of advancing new products and services regularly and keeping them involved in the process of buying and selling. The strategy has made the form to a call from the mobile services provider to become a big business that offers mobile phones, devices, broadband services, and energy.

Calculating required rate of return with CAPM

The company has also tried to improve the status of its energy providing branch by merging with click energy group Holdings Private Limited which is an online Australian energy-related retailer offering electricity and gas to the consumers. Also, it was observed that the strategy of the firm was very similar to the merging company which will be helpful in aligning their work with the management team and thus helps in enhancing the large-scale operations that will be conducted by the firm in near future. It has been noticed that over 800,000 households have been indulged with the company in order to get the cross cell potential at its best (Amaysim, 2017). The company has also made an execution team which have made strategies in order to make progress in this field and this work hard in order to get all these products in the market under the name of AMAYSIM Limited thus making this very important step in order to gain future importance in the cross-selling potential which will be unlocked by the application of these kind of strategies. The company has made it clear that it will be enhancing the technology platform and thus making the trademark of the company-centric approach so that it may prevail in almost all Australian household in any form of energy or service (Merchant, 2012).

The Board of Directors of the company has the duty of putting the business on the right track. The company referred to here is Amaysim Group. The Board dominates the functions a.ong with the financial position and thus the output presented by the company. Board decides the strategy to be followed so that the business gets stronger with time and also decides the investment sector along with the amount to be invested (Amaysim, 2017).  The core of the Board is to raise the performance rate of the company so as to increase the share price and the generated revenue. It is the Board who is to see the expansion of the Amaysim Group.  It is the duty of the company to see that all the presented information by the company is made available to the customers as soon as possible. Rules associated to the timely delivering of essential and fair information by the company must be made as per the ASX Listing Rules and the Corporations Act.  The policies followed by the company show that how the outlets of the Amaysim should work and what kind of working atmosphere should exist. Legal guidance is also necessary for the expansion so that the outlets carry on their duty under the legal rules and regulations that are framed as per the policies of the company.  

Is the company a conservative investment?

This type of ratios plays a key role when the company wants to analyze the Debt obligations. It helped the company in order to analyze the type of investment it has which can be created or turned into cash on a short-term basis. If the analysis of the liquidity ratio states that it is not up to the mark then the company is not able to provide the debt obligations up to the period of 1 year which states that the company is ineffective towards liquidity (Ross et. al, 2014). Also, the efficiency ratio plays an important role when the assessment of a company takes place. This ratio helps to find the effectiveness of the firm and is more or less equivalent to the liquidity ratio because of the method it uses to calculate the ratio. In the end, it is clear that the management will be unable to use the funds and this will also be restricted from earning profits (Petty et. al, 2012).

The current ratio is used to find out that the rotation of words can be made with the help of debtors and a stock present in the company or not. The main purpose is to clear the creditors with the help of debtors and stock and as dividing current assets of the company with its current liabilities (Melville, 2009). The quick ratios are used by the company in order to evaluate the liabilities that it has to pay so that a better and clear view of the current ratios can be included because there is the absence of stocks in this ratio (Lapsley et. al, 2012).

The quick ratio of the company is said to be one is to one that states that the liquidity strength is good and also the company can meet the future applications in order to indulge in business applications. Also, the fixed asset ratio of the company is depicting a uniform nature does reflecting utilization of the Assets of both years and making it profitable for the firm.

As per the liquidity, it can be commented that the company is facing huge issue because the current assets are insufficient to meet the liabilities. The standard ratio should be 1:1 that indicates $1 of current asset for every $1 of current liabilities (Merchant et. al 2012). However, both the current ratio and the quick ratio projects weakness in the company’s liquidity and hence, will be difficult when it comes to the payment of liabilities.

Discussion on the dividend policy

These types of ratios can be used in order to calculate the general earnings with respect to the cost and other expenses that are incurred by the firm generally. The high value of ratios depicts the superiority of the firm in the market in relation to its competitors. The difference between the previous year’s ratio and the current ratio is also high then a positive working environment of the firm is estimated thus making it very profitable as the net profit margin, gross profit margin, and return on equity and return on assets will increase (Brealey et. al, 2011). Determination of this kind of profit margins will help the firm to determine the usage of materials And Labour which have been used in the manufacturing process.

As per the gross profit and net profit margin, it can be commented that the company is generating profit. The gross profit is intact at 100% because whatever is produced is sold and hence a strong figure. In addition, the net profit margin of the company has dipped in the year 2017 owing to the increment in the operating expenses.

The efficiency ratio can be described as the ratio that is used to denote how efficiently the company utilizes the assets, as well as liabilities internally. The efficiency ratio computes the turnover or receivables and the payment associated with the liabilities (Bodie et. al, 2014).

From the computation of working capital ratio and the asset turnover ratio, the efficiency of AMAYSIM is done. The working capital ratio of the company is not formidable because there are more of current liabilities as compared to the current assets. It would be difficult to honor the obligations (Amaysim, 2017). On the other hand, the asset turnover ratio projects that the assets has been utilized in an effective manner because it is positive in nature however, the percentage is too low and has dipped in the year 2017.

EPS is an indication of the profit that is reaped by the company. The book value is positive however, dipped in the year 2017. Moreover, the book value of the share increased in the year 2017 meaning that a proportionate increment happened in 2017.

From the chart it is clear that the chart of the company follows the all ordinary index and is projected above in the chart. However, it needs to be noted that in the time of ups and downs it fails to match the line. In short, when there is a volatility, it fails to consider the line (Porter & Norton, 2014).

Recommendation for investment portfolio

At the half year ending, the output shared by Telco showed that the total revenue which was generated at the time was about $292-$294 million and in this, the company only generated $17-$18 million.  It was in these circumstances that the company raised the bar for the mobile users by 10 percent but then also the APRU decreased to $22.46 which showed the downfall to be of 7 percent which was similar to the downfall of the total revenue generated (Amaysim, 2017).

The company in its presentation showed that the cheaper plans introduced by the company was opted for by the customers which recharged with decreased data top-up and this decreased the overall revenue. It shares have been seen to be unstable. It was seen to increase by $1.50 in February 2015 but then it collapsed. Amaysim has been facing stiff competition from Aldi who has been in the same field. They both are the seller of the Optus Spectrum

Extra features are the ones that allow Amaysim to dominate the market and that is the online mode which attracts customers to join with a penny to spare and the cheaper plans have also been a boon against the other telcos companies

The increment in the number of customers has led to increase in EBITDA of the Amaysim Group which is seen to be beneficial for revenue generation

1. Beta is a measurement of the volatility of the stock in comparison to the market as a whole. For Amaysim, the beta stands at 1.57. Since, the beta of the stock is more than 1 it indicates that the volatility of the stock is more as compared to the market volatility (Marsh, 2009).
2. CAPM

E(R) = RFR + β_stock (R_market – RFR)

                  = 0.04 + 1.57 ( 6-4 )

                  =3.18

• Amaysim cannot be said to be a safe or an investment that is conservative in nature because the stock has the beta of more than 1 meaning huge volatility will be faced by the stock in comparison to the market.

1. Weight of equity = E/ (E+D)

= 76/(76+216)

= 76/292

=0.26

Weight of debt = D/(E+D)

= 216(76+216)

=0.73

Cost of equity = 0.04+ 1.57 * (6-4) = 3.14%

Cost of debt = 787/   = 3.868%

WAC = E(E + D) * Cost of equity + D/ (E+D)* Cot of debt* (1- tax rate)

= 0.26 * 0.031 + 0.73* 360 * (1- 40%)

=0.008 + 157.68

=157.688%

1. Implications of higher WACC

The increase weighted average cost of capital in relation to a firm’s business signifies the tendency to encounter a loss or risk based on the announcement in the affairs of the organization. The increase will also depict the high demand of investors towards a return. Also during the time of making investments, it will be harder for the firm to make decisions because of the higher weighted average cost of the capital. Also, the data of WACC debt obligations will help the form to evaluate the net expenses that have been taken place in financing resources (Berk et. al,, 2015). The improper management of the company can also be the reason for this. Hence it is observed that the company is trying to decrease the capital caused by overcoming the weighted average cost of capital and using cheaper finance sources which are present in the society. After analysis of all the above statement it is clear that WACC results in additional risks and expenses for the entire company and also it can be said that an additional amount of risk in the company is experienced when the expenses overcome its expectations.

The debt ratio indicates the composition of debt that a company uses in the capital structure. Higher composition of debt can hamper the progress of the company because more of funds will go towards payment of interest. Therefore, it is feasible to have a ratio of debt below .50. In the present scenario, the debt ratio is below .50 indicating that the company uses low level of debt for the performance and going by the liquidity status of the company, it can be commented as the best plan (Laux, 2014).

The total liabilities has enhanced in the year 2017 indicating that the company has increased the liabilities base. This indicates that there has been no repayment of debt. The company is utilizing the debt structure by the regular payment of interest.

It has been clearly announced that a dividend of $0.05 per share will be distributed to the shareholders on Wednesday, October 25, 2017. So it would be very beneficial for the customers in order to invest in the company’s equity share because of the high return that it may provide in the near future and also giving them an assured dividend. The AMAYSIM Australia Limited seems to look attractive from over the view of its financial statement that declares the dividend of 4.72%. This may be a rising concern for the investors as they need to carefully analyze the financial statements of the form before making any decisions regarding the investments that they are going to make. The current payout ratio of the stock has been issued as 149 percent which states that the dividend of the firm is not well covered by the revenue the organization has incurred in recent years (Amaysim, 2017). Also, the analysis of the firm expects a dividend of around $0.159 and EPS to increase to $0.22 which should make the dividend expected future payout ratio to 72%.

The payout ratio of the organization is the indicator of the company’s strength to provide the customers with a dividend in order to keep them happy. The company should also take in consideration that how frequently have it provided the customers with the dividend (Leo, 2011). If a person wants to invest in a particular kind of stock then the best stock would be dividend stock because of their stable income generating abilities. But the present conditions make the point to be realizing that the company AMAYSIM Australia Limited has a point in business where it is not able to provide the customer with proper dividend investment. The company has been consistently paying dividends from 2 years to the customers in order to keep them happy but the company should also seek the advice of the finance managers and then provide evidence to customers but not so frequently. For reliable players in the industry, it has been seen that 10-year minimum track record is used in order to provide a dividend to the customers.

Conclusion

Going by the discussion from the annual report, it can be said that the company Amaysim could not performed effectively in the year 2017. The liquidity position of the company is weak and hence, if any obligations arise then it would be difficult for the company to repay the debts. The debt structure of the company indicates that low level of debt has been used that strikes the concept that the growth will be limited. If the company wants to expand then it needs to stress upon the debt requirement and further enhance its position of liquidity. Since, it is related to innovative technology, the company can expect a promising future ahead. However, going by the current status, it would be feasible not to invest in the company because it has shown no momentum and solidity in its functioning.

References

Amaysim. (2017) Amaysm Annual report and accounts 2017 [online]. Available at: https://investor.amaysim.com.au/irm/PDF/1425_0/FullYearResultAnnouncement [Accessed 18 May 2018]

Arnold, G. (2010) The Financial Times Guide to Investing. Prentice Hall.

Berk, J,  DeMarzo, P. and Stangeland, D. (2015)  Corporate Finance. Canadian Toronto: Pearson Canada.

Bodie, Z, Kane, A. and  Marcus, A. J. (2014)  Investments.  McGraw Hill

Brealey, R., Myers, S. and  Allen, F. (2011) Principles of corporate finance. New York: McGraw-Hill/Irwin.

Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management. [online].  9(3), p. 291-292. DOI: https://doi.org/10.1111/1468-0408.00081

Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting  Review. [online]. 24(3), 1-34. Available from: https://www.emeraldinsight.com/doi/abs/10.1108/01140581211283904 [Accesssed 18 May 2018]

Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014) Fundamentals of Corporate Finance, 7th ed. North Ryde: McGraw-Hill Australia Pty Ltd.

Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.  Accounting and Business Research. [online]. 44(4),  380-382. DOI: https://doi.org/10.1080/00014788.2014.897867

 Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill

Marsh, C. (2009) Mastering financial management. Harlow: Financial Times Prentice Hall.

Melville, A. (2013) International Financial Reporting – A Practical Guide. 4th edition. Pearson, Education Limited, UK

Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting  Review. [online]. 24(3), 1-34. Available from https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf [Accessed 18 May 2018]

Needles, B.E & Powers, M. (2013) Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.

Parrino, R, Kidwell, D. & Bates, T. (2012) Fundamentals of corporate finance. Hoboken,

Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012) Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education Australia.

Porter, G. and  Norton, C. (2014) Financial Accounting: The Impact on Decision Maker. Texas: Cengage Learning

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order