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Altran Techno Company

Altran Techno is an engineering company (other than construction and information technology), an European leader in innovation consultancy. The group was formed in 1982 and building on its rapid growth in Europe, Altran has now extended its services in countries like (USA, South America, and Asia) and gambles on the ever increasing complexity of today's technologies. /p>

This has actually proved worthwhile. The gamble of introducing a multi-technological and multi-sector approach has enabled Altran to bring technological solutions to its clients and thereby made them genuinely competitive in business world. The group is involved, at multiple skill levels, in areas such as the science of physical phenomena, model building, chemistry, automation, electronics and computing systems and multimedia. /p>

Altran has widened its horizons as it has grown and now over 50% of its turnover comes from abroad. Every year the Altran foundation awards a prize for some technological innovation that benefits the general public./p>

KEY FIGURES/p>

Year /p>

2006 /p>

2005 /p>

2004 /p>

2001 /p>

2000 /p>

Figures are millions of Euro /p>

1,591.4/p>

1,495.6/p>

1,434.5/p>

1,418.68/p>

1,337.7/p>

Net Profit/p>

21.6/p>

3.8/p>

0.2/p>

-2.1/p>

-92/p>

Auditor:/p>

Deloitte & Touche/p>

Number of employees:/p>

17,057 ( 31/12/2006 )
16,152 ( 31/12/2005/p>

Altran Techno's board comprise of:/p>

Chairman of Supervisory Board:/p>

Dominique de Calan/p>

Chairman of the Executive Board:/p>

Yves de Chaisemartin/p>

Chief Financial Officer:/p>

Eric Albrand/p>

Communications:/p>

Pascal Brier/p>

http://uk.finance.yahoo.com/q/pr?s=ALT.PA

Discussion of Beta/p>

By the term Beta we mean a measure of the volatility, or systematic risk,of a security or a portfolio in comparison to the market as a whole./p>

Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market.A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market.A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market. http://www.investopedia.com/terms/b/beta.asp

To calculate Beta of a company's equity (using the market model), the process of regression needs to be performed for the monthly returns of the share against the monthly returns of the French market index (CAC40). /p>

The monthly returns of Altran, Techno shares against the monthly returns of the CAC40 index have been presented in as an appendix to this analysis. The period taken into consideration for this analysis covers the period 1sup>st January 2003 to 1sup>st January 2008./p>

However, the calculated value of Beta at 0.804956 (0.805) was arrived at after regressing the data for the period under review. The p-value is 0.176345. This simply shows that the beta of 0.805 is not significant at the 5% level because the p-value is above 0.05. On the basis of this scenario, I am rejecting my beta, but however, have chosen to use the surrogate beta of 1.35 since Altran Techno falls within this category./p>

I have chosen a surrogate beta of 1.35 of General Industrial since Altran Techno involves in all kinds of engineering other than constructions and information technology./p>

No of observation in my data are 59. One important issue to observe in this study is that the calculated beta is even lower than the industry average./p>

http://geocities.com/vshenai2000/abacus.rtf

R squared/p>

Astatistical measure that represents the percentage of a fund or security'smovements that can be explained by movements in a benchmark index. For fixed-incomesecurities,the benchmark is the T-bill. For equities, the benchmark is the S&P 500./p>

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of asecurity are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) however does not act much like the index. In the case of Altran Techno, the company has an R squared of 0.031837, going by the above scenario, its fund's performance patterns have not been in line with the index. This 0.031837 provides an estimate of the proportion of the risk of Altran Techno that can be attributed to market risk while the balance 1-0.031837 can be attributed to firm specific risk./p>

The standard error is the standard deviation of the sampling distribution of that statistic. These are important because they reflect how much sampling fluctuation statistic will show. In this case Altran Techno's standard error is 0.150538 which is the specific risk that cannot be diversified/p>

Multiple r

Multiple r tells how efficient a system is. In the case of Altran Techno, its multiple r is 0.178429/p>

French Yield curve and Equity Market Risk Premium/p>

The French Yield curve/em>

According to Bodie et al, (2005:496) yield curve is a graph of the yield to maturity on bonds as a function of time to maturity The yield curve reflects expectations of future interest rates; it also reflects other factors such as liquidity premiums. The yield curve is one of the main concerns of fixed-inflow for investors./p>

From the explanation we can easily say that the slope, shape, and level of yield curves may vary over time with fluctuation in interest rates. /p>

The shape of the French yield curve for the first 4-5 years is falling due to the market reaction to news relating to the effect of the credit crunch balloon, the whole effect of the situation is not known and the situation is driving investors to expect the central bank to cut interest rate and tighten monetary policy in order to deal or prevent the inflation and recession that are spreading around the world./p>

However from the 6 to 15sup>th years the shape of the yield curve is upward showing sign of investors' expectations that the policies and actions implemented by the federal banks and governments will lead the economy to a slow but steady growth, furthermore the rise in the shape of the curve can be seen at the beginning of an economic expansion, or after the end of a recession. Here, economic stagnation will have depressed short-term interest rates; however, rates begin to rise once the demand for capital is re-established by growing economic activity.

The shape of the curve is then flat from the 16th years onward because the maturities have a similar incomes or returns; however we can notice that between the 30th years and the 50th the curve fall a bit maybe due to investor's uncertainty towards the future.

Equity market Risk Premium/p>

The excess return that an individualstock or the overall stockmarket providesovera risk-free rate. This excess return compensates investorsfor takingonthe relativelyhigher riskof the equity market. The size of the premium will vary as the risk inaparticular stock, or inthestock market as a whole,changes; high-risk investments compensated with a higher premium./p>

Simply put, risk premium is the premium that investors demand for investing in an average risk investment, relative to risk free rate with following pre-requisite including greater than zero, increase with the risk aversion of the investors in that market, increase with the riskiness of the average risk investment./p>

Estimation of the Cost of Equity capital of the company from the CAPM

According to Ross et al, 2005 the Cost of Equity Capital is 'the required return on the company's common stock in capital markets Looking at it from the other way, it is what equity holders can expect as a return when they invest in the stock market. With the use of CAPM the cost of equity capital of Altran Techno can be computed as:/p>

Ke = Rsub>f + ß(E(Rsub>m - Rsub>f)/p>

Where:/p>

Ke = Cost of Capital; Rsub>fsub> = Risk free rate; E(Rsub>m)sub> = Expected Return on the Market Index/p>

ß = Beta; Rm-Rf = risk premium; /p>

I am using a risk free rate of 3.957% for Altran Techno in calculating the cost of equity. This is derived from the three month government Treasury bill with a maturity in December 2008. (see appendix) This value (3.957%) indicates the return an investor is likely to receive if invested./p>

The choice of this rate is prompted by the fact that investors will prefer to invest over a short period of time in order to have a follow up of their investment on monthly basis./p>

Rsub>m return on market/p>

The market comprise of stocks on CAC40. The market rate (Rsub>m) is calculated using the average of the market returns on CAC40 over the five year period (1/01/2003 to 1/01/2008). Base on the fact that my beta is not acceptable, I have chosen not to perform this operation./p>

Estimating Expected Returns: 1 Jan 2003 to 1 Jan 2008/p>

I am using the risk premium of 7.08% to calculate my cost of equity (ke) (See appendix)/p>

Ke = Rfsub> + ß (Risk Premium)/p>

Ke = 3.957 + 1.35 (7.08%)/p>

Ke = 13.515%

Review/Discussion of Cost of Equity Capital/p>

The study showed us that the Cost of equity capital of the company (Ke) is 13.515 %, which is less than the total risk at 27% and 17% of specific risk, however the use of this to investors point of view include but not limited to:/p>

a. As a potential investor in Altran Techno this expected return of 13.515% is what can be expected to make in the long term, only if the stock is correctly priced and the CAPM is the right model for risk,/p>

b) This is the return that the investor needs to make on Altran Techno in the long term to breakeven on investing in stock./p>

From the perspective of Managers at Altran Techno,/p>

a. They need to make at least 13.515% as a return for their equity investors to breakeven./p>

b. this is the hurdle rate for projects, when the investment is analyzed from an equity standpoint./p>

References:/p>

http://uk.finance.yahoo.com/q/pr?s=ALT.PA

http://www.investopedia.com/terms/b/beta.asp

http://geocities.com/vshenai2000/abacus.rtf

Bodie /Kane/Marcus; Investments (2008) 7sup>th edition; McGraw-Hill/p>

Ross / Westerfield /Jaffe; Corporate Finance (2005) 7sup>th edition; McGraw-Hill/p>

http://www.bloomberg.com

http://www.aft.gouv.fr/aft_en_21/debt_management_51/main_figures_235/french_government_yield_curve_236/french_government_yield_curve_469.html

/p>

http://www.banque-france.fr/gb/poli_mone/taux/html/page4.htm /p>

http://finance.aol.com/quotes/autonation-inc/an/nys/fundamentals

Bibliography:/p>

BODIE /KANE/MARCUS; Investments (2002); McGraw-Hill/p>

ROSS / WESTERFIELD /JAFFE; Corporate Finance (2005) 7sup>th edition; McGrawHill/p>

http://geocities.com/vshenai2000/abacus.rtf

http://www.bloomberg.com

http://finance.aol.com/quotes/autonation-inc/an/nys/fundamentals

http://www.aft.gouv.fr/aft_en_21/debt_management_51/main_figures_235/french_government_yield_curve_236/french_government_yield_curve_469.html

http://www.banque-france.fr/gb/poli_mone/taux/html/page4.htm /p> http://www.investmentweek.co.uk/public/showPage.html?page=344846 /p>

http://www.banque-france.fr/

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