Investment Analysis Report Essay

2466 Words Jan 28th, 2012 10 Pages
Corporate Financial Management

Investment Analysis Report on Majestic Wine Plc

SECTION A

a) Majestic Wine is the UK’s biggest retailer specialising in sales of wines by the mixed case (About Majestic, 2011). The company was established in 1980 (About Majestic, 2011). It has 166 stores in the UK and has opened stores in France also (About Majestic, 2011). It also has an online presence to generate sales.

The company’s strategy is built around delivering a high standard of customer service by trained staff (Majestic annual report 2011, 2011, p. 3). All retail staffs are required to take the Wine and Spirit Education Trust’s advanced certificate after about six months in the company (Our Staff, 2011).

b) Majestic Wine is
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The average of two rates of equity is 13.1%.

Share price = 13.0*(1+10%)/(13.1%-10%) = 461.3 pence.

(i) The table below shows the historical share price of Majestic Wine and FTSE 100 Index over the last three years. Majestic’s share price increased every year over the period to a total gain of 198%. On the other hand, the performance of the market (FTSE 100 index) wasn’t as good with decline in 2011 and overall 3-year gain of 34%. This implies that investors perceived Majestic to perform better than the overall market.

(j) The table below shows calculations for the cash conversion cycle. The cash conversion cycle increased by 8 days in 2010/11 because of increase in inventory. This implies that higher amount cash was tied up in operations in 2011.

SECTION B

I. Introduction
This report analyses Majestic Wine plc as a potential investment in the proposed Stable Growth Fund. Majestic Wine is the largest retailer of wines in the UK with 166 stores and has 3 stores in France also. The company sells wines and spirits to both retail and business customers and business customers now account for about a quarter of total sales. It also has an online presence to generate sales. The company is listed on the AIM and had a market capitalisation of £264 million on 19th October 2011.

II. Historical operating performance
Majestic’s revenues increased in all of the last 4 years. The growth was aided by acquisition of

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