3BM070 : You work in the corporate finance department of a major investment bank. One of your clients has expressed an interest in investing in either ASOS (ASC:LSE) or Marks and Spencer: Strategic Corporate Finance Assignment, YBS, Singapore

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University York Business School (YBS)
Subject 3BM070: Strategic Corporate Finance

Information for Tasks 1 and 2

You work in the corporate finance department of a major investment bank. One of your clients has expressed an interest in investing in either ASOS (ASC:LSE) or Marks and Spencer (MKS:LSE).

You have collected the following information about the two companies:

Statement of financial position as at:31 August1st April
ASOSMarks and Spencer
Non-Current assets
Property plant and equipment137.477.24,837.85,027.1
Intangible assets178.0113.5709.0802.8
Current assets
Trade and other receivables28.615.0318.6321.1
Cash and cash equivalent162.6173.3468.6247.6
Total assets840.4650.08,292.58,476.4
Issued Called2.92.9406.2405.8
Share premium6.96.9416.4411.3
Retained earnings327.2254.76,648.16,927.5
Total equity287.1200.43,150.43,443.4
Non-current liabilities9.121.02,774.12,928.2
Current liabilities
Trade and other payables480.7370.71,553.81,617.7
Current tax liabilities5.82.966.675.2
Total liabilities553.3449.65,142.15,033.0
Total equity and liabilities840.4650.08,292.58,476.4
Statement of comprehensive income for year ending:  31st August1st April
Cost of sales(965.3)(722.7)(6,534.2)(6,427.0)
Gross profit958.3722.24,087.84,128.4
Distribution expenses(299.2)(216.0)(3,460.4)(3,412.9)
Administration expenses(579.5)(464.1)(437.4)(200.8)
Other operating income0.
Operating profit79.642.1253.2584.1
Finance income/(Costs) – Net0.40.7(76.8)(95.3)
Profit before tax80.042.8176.4488.8
Income tax expense(15.9)(8.1)(60.7)(84.4)
Profit from continuing operations64.134.7115.7404.4
Discontinued operations0.0(10.3)0.00.0
Profit attributable to owners of equity64.124.4115.7404.4
Other comprehensive income12.2(67.5)(44.9)268.1
Total compincome/(loss) for year76.3(43.1)70.8672.5
Other information:
Nominal value per share (£)0.0350.0350.2500.250
No. of Shares (Million)82.982.91,624.71,623.0
Earnings per share (pence)76.629.330.234.9
Dividends per share (pence)nilnil23.318.4
Share price at year end (pence)5,667.04,530.0334.6410.4
Value of equity (£m)4,695.53,753.45,436.26,660.8
Price earnings ratio74.0154.611.111.8
Average p/e ratio for sector17
Share price 30 November 2017(pence)6,069.0313.2
Equity value at 30 November 2017 (£m)5,028.65,088.6

NB: Above figures will be updated before the assignment is issued

Notes on the above information:
Asset valuations

These have been reviewed for the most recent year and it is thought the figures should be adjusted follows:

Adjust for inventories (£m)20.0(45.0)
Adjust for receivables (£m)(3.0)6.0
The Capital Asset Pricing Model

Assume the risk free rate of return is 3% and the expected return on the market is 6% per cent.

Beta has been estimated as follows using two analysts and they have arrived at the following estimates:

Analyst 11.61.1
Analyst 21.20.9
Non-Current liabilities

Coupon rate5%6%
The current price per £100£95£102.5

Assume non-current liabilities are shown in the statement of financial position at par value and are non-redeemable.

The relative share price movements of the two companies are below


Task 1: Calculate Value of Asos plc and Marks and Spencer plc for the latest year (Use only the information contained in this assignment)

a) Net asset value

  • Calculate the Net asset value per share.

b) Cost of capital

  • Calculate the cost of equity capital using the Capital Asset Pricing Model.
  • Calculate the cost of debt capital (assume a taxation rate of 20%).
  • Calculate the weighted average cost of capital (WACC) using the share price as at 31 Dec 2017 for the value of equity.

c) Dividend growth model

  • Basing your calculations on the dividend for 2017, use the dividend growth model to calculate the theoretical price of a share under the following assumptions:
    g = 0%
    g = 2%

Task 2 Comment on the value of ASOS plc and Marks and Spencer plc Required:

  • Use the information from your calculations above and any other information you deem appropriate to arrive at the valuation per share of the two companies.

In doing so critically evaluate the Price-Earnings ratio, Dividend Growth, and the dividend policy.

  • You should also relate your calculations to current and historic share price information as appropriate.
  • Discuss which company you would advise your client to purchase shares in.

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