Outlook - First Group Company

According to First Group Company (2012) The First Group Company dividend yield is 11.01%, which represents 66.7% of the estimated earnings, cited by Financial Times (2012). Therefore, the dividend is covered, but not powerfully, and rationally probable to prove sustainable.

It is possible to say that the First Group dividend is perhaps safe this year but will almost certainly be halved or axed completely in 2013. According to The current yield of 11%, which indicates a clear warning sign for the company.  Moreover, it is quite likely to predict that the share price for First Group could continuous falling within the next couple of months. Since the share price has fallen below the psychologically important of 200GBp level. . This company would have a better chance of turning things around, if the UK government had a sensible transport policy. 

However, as far as the future outlook of the First group company; it can be expected that the performance of the company will increase in the coming times due to its excellent services and the unique traveling facilities provided by the company. In the hospitality industry of the UK, First Group Company will have a much greater name in the years ahead, it does believe that First Group Company has a strategy management and clear vision along with a strong management team. 

BIBLIOGRAPHY

WEBSITES

• First Group (2012) “ First Group Latest News” [online] Available at: http://www.firstgroup.com/corporate/latest_news/ (Accessed 28/05/2012).

• Financial Times (2012) "First Group PLC" [online] Available at: http://markets.ft.com/Research/Markets/Tearsheets/News-andcomment?s=FGP:LSE (Accessed 28/05/2012).

Raio Analysis Summary

First Group plc

Ratio Analysis summary

FirstGroup Plc-Financial Ratios
Profitability Ratios	2011	2010	2009	2008	2007
ROI % (Operating)	366.26	347.3	359.1	386.87	515.63
Liquidity Ratios
Quick Ratio	0.71	0.72	0.53	0.7	1
Current Ratio	0.77	0.78	0.6	0.84	1.09
Debt Management
Interest Coverage	68.78	64.61	70.31	82.39	941.99
Asset Management
Total Asset Turnover	1.18	1.1	1.15	1.28	1.6
Receivables Turnover	11.1	10.42	10.28	9.67	9.88
Inventory Turnover	69.84	62.35	63.92	63.36	62.44
Accounts Payable Turnover	21.39	20.95	22.01	21.24	22.88
Property Plant & Equip Turnover	2.94	2.7	2.86	3.15	3.73
Cash & Equivalents Turnover	17.78	19.22	21.91	14.37	12.67
Per Share
Cash Flow per Share	1.16	0.94	1.04	0.84	0.74
Book Value per Share	1.94	1.86	1.63	1.58	1.36

First Group Company has been unable to maintain a liquid position as the current and quick ratio has been declining since 2007, cited by Mergent Online (2012). This has made difficult for the company to maintain strategic alliances with its suppliers and obtain inventory on short-term basis, which in turn, has affected all other aspects of the financial management. 

From the financials and ratio analysis, we can also say that company used most of his profit in paying off the bank loans and other debts as there is huge reduction in the amount of Long term liabilities by (3331.9£m - 2888.2£m) 443.7£m  that is mainly because of reduction in bank loans and other payables of the company, cited by Bragg (2006).

Return on Equity analysis concludes that the return on the equity of the company is reduced in the year 2011 as compare to the year 2010. It has also been observed that large portion of profit earned in the year 2011 is contributed towards the equity of the company that directly affected per share divided of the organisation.

BIBLIOGRAPHY

BOOK

• Bragg, S. (2006) " Business Ratios and Formulas" .3rd Edition. Wiley Corporate. USA.

WEBSITES

• Mergent Online (2012) " First Group plc" [online] Available at: http://www.mergent.com/searchresults.asp?cx=001435189050236951772:ddk6-8igemi&cof=FORID:11&q=FIRST%20GROUP%20Company%20plc&sa=Search (Accessed 20/05/2012). 

First Group Share Prices & Indexes

According to First Group (2012) its market capitalization of USD 1.51 bn. ranks it among mid-cap stocks. During the last 3 years First Group plc stock has reached the highest share price of 438 GBp (28/09/11) and a lowest share price of 190.0 GBp (23/04/12).

According to Financial Times (2012) the poor performance of the company in their share prices in April was considered by the sale of 130 - vehicle bus depot in northeast London to their competitor Go-Ahead Group for a £14m deal. This selling was in order to reduce First group debt. In addition, the economic crisis hitting the UK, especially in transportation has made the share price falls. First Group Company current share price of 218.8 GBp (25/05/12), places it 47.0% under its 52 week high and near its bottom (bi-weekly closing), cited by First Group (2012). The price development is generally in the volatility channel whose upper and lower limits are presented here. Crossing one of these limits is an exceptional situation accompanied by strong increases in short-term volatility, Cited by Financial Times (2012).

First Group Company has been active in the Travel & Tourism industry since twenty years ago, and therefore belongs to the Travel & Leisure industry group, cited by Financial Times (2012). In order to evaluate whether First Group Company is at this time reasonably priced, this could be compared with the projected earnings growth and its dividend with the estimated PE ratio, this information was taken from Financial Times markets data (2012). Based on this,

•     The company is basically undervalued compared to its fair price.
•   The company valuation is less attractive than the Travel & Leisure sector.

Currently, the share price probably for First Group Company is quite good, even if other companies stocks in the travel and leisure business group show a higher valuation, for example Go-Ahead despite of being below the FTS 100 index since January 2012, currently has progressed its share price in +1.28, cited by LSE (2012).

According to the Financial Times (2012) the projected earnings growth to the estimated PE ratio of the First Group company is quite high (2.24), which means that First Group company past earnings experienced a strong decline before shooting upward again, cited by Financial Times (2012). First Group Company positioning against its Travel & Leisure sector accentuates that the evidently negative trend of its earnings revisions is a particular problem to the stock, because its environment is -on the contrary- being positively revised, cited by The Screener (2012).

The medium-term technical trend for First Group Company has been negative since 13/01/2012 at a share price of 317.9 GBp. According to Financial Times (2012) First Group adjusted technical reverse point is 233.96 GBp, or 16.9% above the current price. This year for Fist Group has shown a relative performance against the reference index FTSE 100. The negative performance of the company confirms that the investors are more interested in other stocks.

BIBLIOGRAPHY

WEBSITES

• First Group (2012) “ First Group Latest News” [online] Available at: http://www.firstgroup.com/corporate/latest_news/ (Accessed 18/05/2012).

• Financial Times (2012) "First Group PLC" [online] Available at: http://markets.ft.com/Research/Markets/Tearsheets/News-and-comment?s=FGP:LSE (Accessed 19/05/2012).

• LSE (2012) “ Go a Head Group plc” [online] Available at: http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary.html?fourWayKey=GB0003753778GBGBXSTMM (Accessed 18/05/2012).

• The Screener (2012) “ First Group PLC ” Financial Report 1, pp 1-4.

Ratios Analysis

 Profitability Ratios

According to Moles (2011) profitability Ratios measure management’s ability to make efficient of the firm’s assets to generate sales and manage the firm’s operation.

Gross Profit Margin


The gross profit margin measures the percentage of net sales remaining after the cost of goods sold is paid, cited by Moles (2011).

Gross Profit Margin  = Net Sales – Cost goods sold / Net Sales

Gross Profit Margin (2010)  = Net Sales  – Cost goods sold / Net Sales

Gross Profit Margin (2010)  = 6.429 – 4.494,4 / 6.429 

Gross Profit Margin (2010) = 30.1%

Gross Profit Margin (2011)  = Net Sales  – Cost goods sold / Net Sales

Gross Profit Margin (2011)  = 6.319 – 4.473.6 / 6.319 

Gross Profit Margin (2011) = 29.2 %

Thus, after paying the cost of goods sold First Group Company plc had for 2010 30.1% and for 2011 29.2% of the sales amount remaining to pay others expenses. This calculation shows that First Group Company’s gross margin has been decreased over the past year.

Operating Profit Margin and EBITDA Margin

According to Moles (2011) operating profit is typically measured as EBIT, the operating profit margin, therefore, gives an indication of the profitability of the firm’s operations, independent of its financing policies or tax management strategies.  

Operating profit margin  = EBIT / Net sales

Operating profit margin  (2010) = 454 / 6.319 

Operating profit margin  (2010) = 7.18%

Operating profit margin  (2011) = 457/ 6.429

Operating profit margin   (2011) = 7.10%

Net Profit Margin

According to Moles (2011) net profit margin indicates the percentage of sales remaining after all of the company’s expenses, including taxes and interest.

Net profit margin = Net income (Profit for the year) / Net sales

Net profit margin (2010)  = 132 / 6.319

Net profit margin (2010)  = 2.1%

Net profit margin (2011)  = 103/ 6.429

Net profit margin (2011)  = 1.6 %

 Source: 4 Traders (2012)

 Source: 4 Traders (2012)

 Source: 4 Traders (2012)

BIBLIOGRAPHY

Books:

• Moles, P. (2011) “ Corporate Finance”.  First Edition. John Wiley and Sons Ltd. England.

Website:

• 4 Traders (2012) "First Group plc" [online] Available at: http://www.4-traders.com/FIRSTGROUP-PLC-4001947/financials/(Accessed 05/05/2012).

Ratio Analysis - First Group Company

In order to measure First Group’s efficiency and its short-term financial health, a ratio analysis capital exercise is performed for the years 2010 and 2011. Having a look at the balance sheet of First Group Plc Company (see below), it can conclude that there is not much significant change in the current ratio of the company. In the year 2010, current ratio of the company was 0.78:1 and for the year 2011, current ratio of the company was 0.77:1.   

Current Ratio (2010) = Current Assets/ Current Liabilities

            Current Ratio (2010) = 1066.2/ 1350.0

            Current Ratio (2010) = 0.78

Current Ratio (2011) = Current Assets/ Current Liabilities

            Current Ratio (2011) = 110.6/ 1427.0

            Current Ratio (2011) = 0.77

Although there is an increase in the current assets of the company, this increase is also supported by the increase in the current liabilities of the organization hence there is no significant changed observed in the current ratio of the company.

According to Moles (2011) the quick Ratio is similar to the current ratio except that inventories are subtracted from current assets in the numerator. 

The quick ratios of 0,72 and 0.71 times means, if we exclude inventories, First Group Company had for the year 2010 £ 0.72 and for 2011 £0.71 of current assets for each £ of current liabilities, cited by Moles (2011).

According to ABE (2009) working capital is defined as current assets less current liabilities, and its represents a measure of the ability of the company to pay its way.

Working Capital = Current Assets – Current Liabilities

Working Capital (2010) = Current Assets – Current Liabilities

Working Capital (2010)  = 1,066.2 – 1,350.0

Working Capital (2010) =  -283.8

Working Capital (2011) = Current Assets – Current Liabilities

Working Capital (2011)  = 1,104.6 – 1.427.0

Working Capital (2011) =  - 322.4

For the years 2010 and 2011 First Group plc Company had a negative working capital, means that during these years First Group was unable to meet its short-term liabilities with its current assets.

Source: First Group Company (2012)

BIBLIOGRAPHY

BOOK:

• Moles, P. (2011) “ Corporate Finance”.  First Edition. John Wiley and Sons Ltd. England.

• The Association of Business Executive ABE (2009) "Introduction to Business" . First Edition. ABE Publishing. England.

WEBSITE:

• First Group Company (2012), “Latest News”, [online] Available at: http://www.firstgroup.com/corporate/latest_news/ Accessed ( April 14, 2012).

Analysis of the Financial Statement for the year 2010 & 2011 - First Group plc

Statement of the comprehensive income for the company for the year 2010 and year 2011 are given below. It is clear from the below statements that the company income is reduced in the year 2011 as compared to the previous year, this reduce in the income of the company shows the decline in the profit of the organisation. In 2011, profit of the company was £117.11m as compared to the profit  of £147.1m in 2010 , this shows the clear decline in the profit of the company by almost (147.1-117.11) £30m,  hence this reduce in the profit of the company is not a very encouraging sign as far as the profitability of the organization is concern, cited by Rajendra  (2007).

It can see a very serious decline in other comprehensive income of the year that was £69.1 m in year 2010 reduced to £28.9 m in year 2011. Total comprehensive income of the First Group company is reduced to £ 146 m in year 2011 from £ 216.2 m in the year 2010. From all the above, it can easily judge that the profitability of the company is reduced to the great extent in the year 2011 as compare to the year 2010,  and as the profitability of the company is reduced,  the dividend per share given was also reduced, cited by First Group Company  (2012).

Source: First Group Company (2012)

Source: First Group Company (2012)

BIBLIOGRAPHY

Book:

• Rajendra S. (2007), “Firms of Endearment: How World-Class Companies Profit from Passion and Purpose”, 1^st Edition, Pearson Prentice Hall

Website:

• First Group Company (2012), “Annual Report and Accounts 2011”, [Online]  Available at: http://www.firstgroup.com/assets/pdfs/investors/annual_reports/2011_annual_report.pdf (Accessed           5 April 2012).