PORTFOLIO MANAGEMENT

Portfolio Management of Luxury Brands



Table of Contents

Introduction2

Portfolio Selection and Financial Performance Comparison2

Financial Performance Analysis5

Short Term Financing Plan8

References10

Appendices12

Portfolio Management of Luxury Brands

Introduction

Diversification in portfolio helps in diversifying the risk of loss on investment decision. It also helps in categorizing the investment decision based on industry characteristics, future outlook, firms' financial performance, and objective of the portfolio investment decision (John, 2005). Maximisation of long term capital returns whilst minimising risk of capital loss is the main objective of the portfolio investment (Higgins, 2010). Firms that have been included in the portfolio fall in more than one industry segment that helps in diversifying the risks.

Five luxury brand companies have been included in the analysis in order to financially examine their stocks and portfolio. These companies include LVMH Moet Hennessy Louis Vuitton, Richemont, PPR Gucci Group (PPR), Tiffany & Co., and Hermes International. This paper investigates the selected luxury brands' financial statements and particularly their performance on the basis of liquidity, efficient use of assets, leverage, and profitability. This report focuses on the financial aspects of the company in order to make a portfolio investment in these stocks.

Portfolio Selection and Financial Performance Comparison

A summary of overall performance of the selected luxury brand stocks in 2011 is shown in table below.

LVMH

Richemont

PPR Group

Tiffany & Co

Hermes

Net Profit Margin

16.89%

14.58%

5.57%

12.43%

20.29%

Operating Margin

21.35%

21.28%

9.47%

19.71%

29.71%

EBITDA Margin

25.10%

25.28%

11.73%

23.70%

33.81%

Return on Assets

9.34%

11.54%

3.45%

11.93%

19.05%

Return on Equity

18.46%

16.51%

8.25%

20.51%

25.15%

Employees

53,589

66,106

14,008

48,046

63,830

Dividend Yield

1.92%

0.93%

3.11%

1.71%

0.65

Dividends Payout Ratio %

32.45%

31.01%

52.16%

31.16%

-

The approach I have adopted in this portfolio investment scenario is risk mitigation through investment in industry dominant firms' stock having stable financial outlook. This diversification reduces to risk of loss in investment (John, 2005). The relationship between risk and reward is essential in the design of investment portfolios. Financial analysis provided company related information in the form of firm's profitability, equity ratios, dividend paid structure, and asset utilization (Higgins, 2010). Considering the main aim of the portfolio to maximize the long-term capital, financial ratios evaluation require technical approach towards stock evaluation. Therefore, technical analysis has been done to evaluate the performance of share on the market index with respect to its competitors and against other (Higgins, 2010). Based on the company performance, investment in the portfolio of these five brands will be as follows.

Company

Closing Price Dec 15

Currency

Closing Price in Pounds

Number of Shares Acquired

Beta

Value of Investment in Pounds

Stock Weight

Weighted Average Beta

 

 

 

 

 

 

 

 

 

LVMH

110.00

EUR

92.52 4,500

1.07

416345

0.24

0.26

Richemont

47.35

CHF

32.17 3,500

1.52

112594

0.07

0.10

PPR Group

105.40

EUR

88.65 7,000

1.17

620564

0.36

0.42

Tiffany & Co

63.65

USD

41.20 4,500

1.83

185403

0.11

0.20

Hermes

223.20

EUR

187.73 2,000

0.64

375467

0.22

0.14

 

 

 

 

 

 

 

 

 

Total

 

 

 

21,500 1,710,372

 

1.124

1 Euro =

0.8411

pounds

1 USD =

0.6473

pounds

1 CHF =

0.6794

pounds

Current portfolio selection aims at mitigating the risk by reducing the portfolio beta, while making investment in firms that have given higher dividend to shareholder in past three years. The overall beta of the portfolio stood at 1.124. Independent risk associated with each share shows that Tiffany & Co. Has the maximum variation risk in its shares since its share has beta of 1.83 (Reuters, 2011d). However, Hermes share has minimum risk associated with the share since it has beta value of 0.64 (Reuters, 2011e). This shows that only 64% variation will be observed in the ...