Investment

24/05/12

Market, Industry & Company Analysis

EFB335 Group Project

N8888888 – Elle McDermott

N7203276 – Hayley Grima

N 7103859 – Jason So

N7159269 – Matt Kruger

N8327955 – Paul Schaffer

Contents

Abstract 3

1.0 Macroeconomic Outlook 4

Figure 1 – XJO (S&P/ASX 200) Monthly prices over 10 years. 4

1.1 Bond Market 4

Figure 2 – Australian Government Bond Yield (%) Over Time (Years) 5

1.2 Forecast GDP 5

Figure 3 – Summary of World GDP Growth (REFERNCE MARKET INSIGHTS MAY) 5

Figure 4 – Australian GDP 6

1.4 Composite Leading Index 6

Figure 5 – Australian CLI Component Series 7

Figure 6 – Australian Amplitude Adjusted Composite Leading Indicator 7

2.0 Industrials Industry 8

2.1 Industry Performance 8

Figure 7 - Industrials (XNJ) v ASX200 (XJO) between 2007-2012. 8

Figure 8 - Airline Industry Value Growth between 2006-2011 9

2.2 Economic Influence on Industry Growth 9

2.3 Industry Trends 9

2.4 Industry Performance over following 12 months 10

Figure 9 - ASX 300 v Industrials 10

3.0 Consumer Discretionary Industry 11

3.1 Industry Performance 11

Figure 10 - Discretionary Consumer (XDJ) v ASX 200 (XJO) 11

3.2 Economic Influence on Industry Growth 11

Figure 11 – Consumer Sentiment 12

3.3 Industry Trends 12

3.4 Industry Performance over next 12 months 13

Figure 12 - ASX 300 v Consumer Discretionary 13

4.0 Company Analysis – Qantas (QAN) 14

Figure 12 – Influence of Capex flexibility on Free Cash Flows. 14

5.0 Company Analysis – David Jones (DJS) 16

Figure 16 – Discounted Free Cash Flow Valuation at -9% Growth. 16

Figure 17 – Discounted Free Cash Flow Valuation at -3% Growth. 17

Figure 18 – Dividend Discount Model -3% Growth. 17

6.0 References 18

Abstract

This report is a top down analysis regarding investment in two Australian ASX listed companies. The companies chosen were Qantas and David Jones. Firstly, an analysis of the macroeconomic outlook has been performed. It concludes that whilst...