FOREX OR NOT FOREX THAT IS THE QUESTION?

Sage is a global company for software and software service, they have 6.3 million companies and organizations using its software and services. And 70% of its profits were earned from outside of UK, the business involves working with 24 countries and they have subsidiary companies in those countries. So we can imagine the currency exchange rates could mean a lot to them. And I start wondering how are they going to be dealing with this multinational currency exchange? Whether they can make money out of it or loose it that's all going to affect their share value in the end.

   

From the 2010 financial report I have seen that they use a number of methods to help with this problem. They used a multi-currency revolving credit facility that matures in 2015 to replace an earlier facility that they cancelled, no doubt they calculated that the new facility would save them money. They also have long-term borrowings, short-term borrowings, short-term bank deposits and cash at bank and in hand.

According to Arnold there are risks such as Transaction, Translation and Economic. The Transaction risk happens when you might receive payment from a foreign country using their own currency that you will have to exchange to sterling. The agreed selling price may not be equal to the received price after the foreign exchange transaction – you might gain or you might loose. In fact Sage translation difference gained £140.6m in 2009 but only £10.5m in 2010 according to their 2010 financial report. The Translation risk happens when the company needs to express the foreign currency into, say, sterling so it can be included in the financial report. But although the foreign currency may have a 'good' figure in its own country after converting into sterling it is subject to the spot price on the day which may give a false impression on the balance sheet. This could then cause an Economic risk to the company which could affect the share value. It may be that Sage uses multilateral netting or Matching to reduce the cost of exchanging currency. Multilateral Netting is where subsidiaries settle intra-organisational currency debts for the net amount owed In a currency rather than the gross amount. Organisations, such as Sage, who have a matrix of currency liabilities between numerous subsidiaries in different parts of the world need a central treasury so that there is full knowledge at any particular time of the overall exposure of the firm and its component part.

They have certainly used cash flow hedging by borrowing in the money markets. This means they can get the money to cover their exports until they receive the payment from the importer to pay back the borrowed money. This improves their flexibility and helps to insulate their economic risk.

Even in these uncertain times I think Sage is doing well and their financial advisers must be doing their job well also to ensure the financial efficiency of the firm.

Sources: Sage Annual Report, FAME, Arnold, G.

                                       

Stagecoach without horses

Stagecoach I believe is familiar for everyone, no matter where you stay in the country somehow sometime you have used their services. Because its such a big Group and it covers bus, coach, and train for all the regions. Basically you will see Stagecoach everywhere. They even cover the North American region and Canada transport. I would say this is a very good business and it benefits themselves, their loyal customers and anybody interested in any investment. Some people will say good transport services are of vital importance to the heart and survival of the city these days and I totally agree. Mega bus. com is one of the coach services run and owned by stagecoach. We often see the advertisement below from their website or elsewhere:

                                                 

Most of the people would say it is a very good deal starting at £1 even though when you book it you have to pay a 50p booking fee, but it is still a very good price for the individuals (working class people, students, etc.). Well, sometimes people would not believe it and they would ask one question, if they charge £1.50 for each journey in total how do they make any money and how are they going to break even? They do this by looking for opportunities where there are a lot of people that need to be moved. Such as in and around large cities and conurbations. This provides a good strategy to keep the buses full which makes them more efficient and improves the profit margin. (bums on seats)

When we look at the Group strategy the firm has a long-term goal on delivering shareholder value through, organic growth in their day to day operations, complementary acquisitions with good returns and targeting to attractive rail franchise opportunities, they seek to improve performance, drive up customer satisfaction, and maintain a long-term efficient capital structure.

Stagecoach started trading at the Main Market (LSE) since 1998, the current market capital is £1,906.89m and it has a recorded 89 major shareholders with a recorded 185 subsidiaries companies across UK, USA and Canada. According to the annual report earnings per share at 2011 has increased to 23.80p (almost 27%) compared to 18.70p in 2010. As the table below shows almost 40,000 individuals hold almost 160,000,000 of ordinary shares and it amounts to 22.2% of total shares, on the other hand 71% of the shares are owned by the banks and varies nominees, the other small percentage of the shares are owned by different organisations. (Investment trusts, etc.) But anybody who owns 3% or more has to be named and listed. Because Stagecoach is a listed plc that means they are able to offer shares to a wide range of potential investors, as a private company has restrictions on the type of purchaser who can be offered shares in the enterprise. Therefore the Stagecoach group could raise any funds they need for further investment easily. On the other hand the payment of dividends are not promised to the investors, thus there are certain risks as well as the share value drop caused by low performance of the company or the macro environment changes.

Analysis of shareholders as at 30 April 2011

Range of holdings	No. of holders	%	Ordinary shares held	%
1 – 25,000	40,249	98.7	42,861,872	6.0
25,001 – 250,000	325	0.8	27,459,025	3.8
250,001 – 500,000	56	0.1	20,366,374	2.8
500,001 – 3,750,000	117	0.3	158,623,083	22.0
Over 3,750,000	38	0.1	470,814,596	65.4
	40,785	100.00	720,124,950	100.0

Classification of shareholders	No. of holders	%	Ordinary shares held	%
Individuals	39,239	96.2	159,875,685	22.2
Other corporate bodies	74	0.2	22,085,965	3.1
Banks and Nominees	1,356	3.3	512,064,798	71.1
Limited companies	103	0.3	21,984,239	3.0
Investment trusts	11	0.0	4,110,309	0.6
Pension funds	2	0.0	3,954	0.0
	40,785	100.0	720,124,950	100.0

The current one Stagecoach share price was 264.80p on 17th Feb 2012. The question is how do they make their shares attractive to the investors? On 7th December 2011 Stagecoach announced a £44m double -deck coach investment in new vehicles for budget coach networks (Megabus. com) for expanding the North American and UK operations. As we can see from the graph below when they announced this news the share price went up to 265.40p (from 243.80p on 05th December 2011). This investment could create up to 500 jobs and I think it is really good for society, and it also give these new staff job opportunities and as a result the accumulated savings of the pension fund gets invested in different ways to create a good return for their retirement. 

Because the rising fuel costs and increased living costs shift people from cars to affordable transport buses or trains to make their journeys, this contribution surely makes Stagecoach more profit in the future. The other reason I think Stagecoach attracts the investors is they have a very good strategy, a strong management team and the intangible value of their reputation. However this research on Stagecoach has shown me that they have a very good website that is easy to understand and full of useful information suitable for potential investors. It also make me think about some investment with them in the future.

Sources: FAME Report, London Stock Exchange, Stagecoach investors-relation, Arnold, G.

A BLACK MARK FOR BLACKBERRY

Blackberry mobile phones are made by Research in Motion. This time last year their stock market share value was 69.30 Canadian Dollars and now the value is only 15.46 Canadian Dollars. In the past year the share price has been almost completely downhill and as you can see below the price is now less then a quarter of last years value. What caused the Blackberry stock share price to drop dramatically? With all the bad news that they had last year, I believe the semi-strong form efficiency of stock market has reflected and reacted on the Blackberry market shares.

Founders and co-chief executives of Research in Motion, the company behind the Blackberry, Jim Balsillie and Mike Lazaridis have been running the company from the beginning. But being in the smart phone business they have not kept up with the requirements of the customer demand, in other words they didn't spend enough on R & D. That's why they have been falling behind their competitors.They have now stepped down and were replaced by incoming chief executive Thorsten Heins. Up to the point that they stepped down the company had been going downhill. It is hoped that the new CEO will breath some life into the company and get it back on its feet. Would this news help change Blackberry shares in the stock market? As I see it the handsets are a bit antiquated with a physical keypad and an old operating system. The only real selling points were the messenger service and a very good secure communication system that has US Government certification. But it is rumoured that the US Government is now testing I-phones, I-pads and Android based systems for possible certification and use. Blackberry has already lost customers such as the National Oceanic and Atmospheric Administration and energy drilling giant Halliburton announced they were switching to iPhones.

                                

There are at least two manufacturing systems here. Blackberry and I-phone use their own proprietary operating system whereas the Android operating system is licensed to a number of manufacturers such as Samsung and HTC. So Blackberry had a management that was not very innovative. Apple has a management that is very innovative and doing very well with almost every product they make. Sometimes they come up with a product that's not a winner but their track record is excellent. Google, with Android has licensed their operating system to other manufacturers who also are very innovative individually, so this spreads their operating system between competitors which will encourage growth. Both Apple and Android operating systems are doing well and it is expected by sheer weight of number shipped that the Android will sell more because of the multiple manufacturers. Most of the new touch screen phones are actually manufactured in China because of labour rates and product costs.

RIM’s share of the global smartphone market slid to 8.2 percent in the fourth quarter from 14 percent a year earlier, while Apple’s share rose to 24 percent from 16 percent in the same period, according to research firm IDC of Framingham, Massachusetts.

The Apple led the global tablet market with a 58 percent share in the fourth quarter 2011, down from 68 percent in the year-ago period, according to Strategy Analytics, a Boston-based, market- research firm.

Facing competition from smartphone makers like Samsung and Nokia, Blackberry-maker Research in Motion has chalked out an aggressive plan for India of increasing its footprint to 160 cities, besides launching new devices and latest Operation System 10 in the latter half of 2012. But Blackberry has always been late with it's introductions of new products so I will believe this when I see it.

The BlackBerry maker already has a presence in about 80 cities in the country now and is keen to tap the increasing demand for smart phones in India. I think this may help Blackberry in the short term but I do not expect it to raise their share value much or their reputation in the rest of the world.

If anybody still has any Blackberry shares what are you going to do? Sell them or keep them. I think anybody who hangs on to their Blackberry shares is very brave. Although the stock market is very unpredictable. Who knows they may rise from the ashes like a phoenix.

Sources: Google Finance; Bloomberg; RIM Quarterly Report

My thoughts on Facebook

It was just a couple days ago that Facebook announced they will enter to the stock market though Initial Public Offering (IPO), I don't think there is anything wrong with it yet. It is another opportunity for the investors and themselves to create more business and more profit, therefore I suspect they will be a lot of people looking forward to the launch the same as Facebook itself. The question is how are they going to position themselves in the right way to increases their future share price and maximisation of their future investors and shareholder's values in the long term. According to Peston (BBC News, 2012) last years profits after tax were one billion dollars, but the actual revenue were $ 3.7bn ( £2.3 bn) last year and it is 95 percent less than the expected market value. Well, the current estimate after the shares are traded would be in the region of $80 bn (or £50 bn). So it is huge for themselves and its industry and further success. Does that mean Facebook still can generate huge amount of share price value in the future?

As far as I know Facebook has been trying to enter the Chinese market all the time as it will be there biggest market in the future, as they predicted, because China has 5bn internet users. There is no doubt of the future potential in the Chinese market, I have to say that there will also be a lot of challenges ahead as well, for example China itself has its own social networks called Tencent (QQ), RenRen and SINA which are similar to facebook and currently has dominated the whole Chinese internet market, it seem to be the Chinese people cannot live without it. Although Facebook had launched a Chinese vision of Facebook in 2008 but this was not available to mainland China, (unless you are clever enough to use a proxy to get in) since then they still have not fully entered the Chinese market due to the Chinese government not giving a go a head permission. Can Facebook successfully enter the Chinese market? Or will the Beijing government probably be suspicious of the control of the ruling communist party that could be effected by the social network? Remember the hassle Google had with the Chinese authorities and they closed their offices and operated from the outside.

Mr Zuckerberg has the equivalent of 56.9 percent of the voting power (CNBC, 2012) with 28.2% of class B super shares and 30.6% of other class B shares, this means that Facebook is actually owned and controlled by him as well. The public will have no say in the governance of the company, does that mean the shareholder will benefit from Mr Zuckerberg's rule of the entire of Facebook? Well we have to wait and see then.

Recent studies of founder CEO firms show that their performance far exceeds that of non founder CEO firms. Founder CEO firms have higher capital expenditures, invest more in R & D, make more acquisitions and focus more on mergers. The valuation and operating performance of these firms have been found to be significantly higher. So I don't think that the new shareholders will have much to worry about.