Assignment 3 - Bloomberg Research PDF

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BUSI 4500 – Financial Management I Spring/2019

Student Name: Kriti Puri Student ID: 201553963

ASSIGNMENT 3: BLOOMBERG DATA COLLECTION A. Security Description ((DES DES function)

i.

Company name: H&R Block Inc.

ii.

Ticker: HRB US

iii.

Company classification: Professional Services

iv.

Primary Exchange: New York

v.

Market Cap (USD): 5,543.8 M

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B. Price (GP function)

i.

Share price: $27.45

ii.

52-Week range: High: $27.61

iii.

as on date: 26/07/2019 Low: $27.36

10-Year weekly historical price chart (GP function):

(Export and insert here the image of the correct price chart generated from Bloomberg)

iv.

Company Key Events – Provide a summary of the two latest key events or news articles displayed on the price chart:

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Question 1: Describe the two key events (in less than 150 words). 1. H&R Block cut as Goldman sees Tax Reform creating Headwinds –

January 31, 2019. According to the White House Council of Economics, doubling the standard deduction could reduce the number of people who need to itemize their taxes. H&R block’s tax preparation business makes up to 70% of the company’s overall revenue but after this change there were fewer people who could use tax preparers and therefore Goldman Sachs downgraded H&R block from Neutral to Sell and lowered his price target from $27 to $22.

2.H&R block 4Q Revenue meets Est, buys Wave Financial for $405Million- June 11, 2019 H&R block reported that revenue for the fourth quarter has met the average analyst estimate. Company also announced that it entered into an agreement to acquire Wave Financial Inc. for $405 million in cash. This acquisition has expanded H&R block’s product and client portfolio and the shares have increased by 6% in the market. It also led to the increase in the dividend from 25c to 26c in the fourth quarter. H&R block estimates this deal will generate $40 million to $45million revenue for 2020 year.

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C. Financial Analysis (FA function)

(Instruction: Use annual financial data for 2018Y. In FA, look for section 5) Ratios and set to view data of Periods: 10 – Annuals. Collect data on the following information) i.

Profitability • ROCE: 1.56 * • ROA: 21.02 • ROC: 41.95 • ROIC: 32.48

*There was no value mentioned in the Bloomberg system and therefore it is being calculated via annual reports of H&R block through outside sources. ii.

Liquidity • Current ratio: 2.24 • Total Debt/Equity: 379.88

Question 2: Based on the above metrics, describe your company’s financial health (less than 100 words).

H&R block has higher ROA, ROC and ROIC as compared to the median of its professional tax group but with a lower ROCE. This reflects that H&R is able to generate profits in relative to its total assets. Higher ROIC describes that company’s historical performance has been better in comparison to its peer. A lower ROCE is a concern for the company as it reflects that company is not able to generate profitability and efficiency out of the capital used. Compared to its peer, H&R block has a higher debt/ equity ratio which implies it is more aggressive in financing its growth with debts. H&R block’s current ratio is 2.24, good enough to pay short-term debt obligations and not too high to indicate that the company is not managing its working capital efficiently. [4]

D. Ownership ((HDS HDS functi function) on)

(Instruction: In HDS, look for section 4) Ownership Summary and take a screenshot) i.

Institutional Holdings - % of shares held: 114.94%

ii.

Insider Holdings - % of shares held: 0.56%

iii.

Largest 3 shareholders:

1. Vanguard Group Inc.- 26,448,805 shares 2. BlackRock Inc.- 22,923,534 shares 3. State of Street Corp- 11,361,776 shares

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Question 3: Define “institutional holding”. Are any of your top 5 shareholders institutional owners? If so, is this good or bad for your company? (less than 150 words) à Institutional Holding- it is amount of company’s available stock owned by mutual or pension funds, insurance companies, investment firms, private foundations and by other large entities that manages funds on the behalf of others. à H&R block’s top five shareholders by size are all institutional holders: 1. Vanguard Group Inc.- 26,448,805 shares 2. BlackRock Inc.- 22,923,534 shares 3. State of Street Corp- 11,361,776 shares 4. Bank of New York Corp.- 9,570,394 shares 5. First Eagle investment Management Inc.- 7,705,778 shares I believe it’s a good thing to have shareholders for the company as it is providing a huge capital/funds for H&R block. Institutions that includes large investment banks, mutual funds and pension funds have smart money in the market and having them invest in the company indicates that company is doing well. Having strong institutional owners greatly enhances the probability of profit and also put the H&R block in more advantageous position. E. Management (MGMT funct function) ion)

CEO:

• Full name: Jeffrey Jones • Tenure (holding current position since): 10/09/2017- Present • Number of shares held:

248,988 shares

• % Outstanding shares held: 0.12%

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Question 4: Comment on the CEO, do you think he/she is a good manager? (less than 150 words) The CEO has been holding this position for 1.8 years now. Simultaneously, he is an advisor at Brit & Co. since May 2017 to present. He is also the founder of LB Works. Apart from being a board member at H&R Block, he is also a board member at Advance Auto Parts Inc. since February 2019. His 28 years of management experience and operational excellence have helped H&R block advance its strategy management and client service. Jeff was an executive vice president and chief marketing officer at Target Corporation till 2016 and this experience has help H&R in enhancing their retail and digital expertise. He is well aware of the knowledge as how to leverage current and emerging technologies to provide solutions that best meet customer needs. Overall, he is a good manager for H&R Block. F. Supply Chain Analysis (SPLC function)

i.

List two suppliers: • International business Machines Corp. • Adobe Inc.

ii.

List two customers: H&R block provide services to people with personal, small business, corporate, farm, trucker, fishing, rental and estate businesses (extracted from https://www.hrblock.ca/our-company/50-years/ ) *

*There were no customers mentioned in the Bloomberg System, hence these are taken from an outside and reliable source.

iii.

List two Bloomberg comparable companies (Bloomberg Comps): • ASGN Inc. • CBIZ Inc. [7]

G. Cost of Capital Analysis (WACC function)

Look for these variables in the WACC function on Bloomberg & calculate the company’s WACC. § Capital structure weights: wE = 78.6% wD = 21.4% wP = 0 § Cost of Equity: Cost of Equity breakdown: • Risk-free rate: Rf = 2.07% • Systematic risk of asset: βE = 0.82% • Market risk premium: E(RM) = 9.07% § Cost of Debt: Total Pre-Tax Cost of Debt = 2.07% Debt Adjustment Factor = 1.43 (Extra component on Bloomberg terminal) Adj. Total Pre-Tax Cost of Debt RD = Total Pre-Tax Cost of Debt * Debt Adjustment Factor = Adj. Total Pre-Tax Cost of Debt RD= 2.07% *1.43= 2.9601% Effective Tax Rate TC = 18.33%

§ Cost of Preferred Equity: Preferred Dividend D = 0 Preferred Equity Price P0 = 0 [8]

Question 5: Given the information you collected on the cost of capital: (a) Calculate the cost of equity (b) Calculate the cost of debt (if the company has debt) (c) Calculate the cost of preferreds (if preferreds exist) (d) Calculate the company’s WACC (e) Compare it to the WACC listed by Bloomberg 1. Cost of equity: RE= Rf+ βE [E(RM) -Rf] = 2.07%+.82%*7 = 7.81% 2.

Cost of debt: RD(1-TC) = 2.9601% (1-18.33) = 2.41751367%

3.

Cost of Preferred: Rp= D/Po= 0

4. WACC= WeRe+ wdRd (1-TC) + wpRp= 78.6% *7.81% +21.4% *2.9601% (1-18.33%) + 0 = .0613866 +.0051729= 6.655%. 5. My calculations result in a WACC of 6.655%, which is almost similar to the WACC listed by Bloomberg.

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