Company Investment in the Australian Stock Exchange

2195 words (9 pages) Essay in Finance

08/02/20 Finance Reference this

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Introduction

The Australian Stock Exchange (ASX) is Australia’s leading stock market, located in Sydney. The ASX acts as a market operator, clearing house and payments facilitator (Investopedia, 2019). Additionally, it provides extensive educational resources for retail investors.

The purpose of this report is to describe, explain, and evaluate three companies that were chosen to invest in, with the Australian Stock Exchange (ASX) share market game. These three companies are Appen Limited, NIB Holdings and New Hope Corporation. This report comprises of the nature of the companies’ business operations, investment reasoning, portfolio evaluation and recommendations.

1.0  Appen Limited
 

1.1  Nature of Business Operations

Appen Limited is a global company in the information technology sector which develops language technology and services in more than 150 languages and dialects to technology companies and government agencies improving human interaction for machine learning and artificial intelligence (Appen Limited, 2019).

1.2 Investment Reasoning

Investing in Appen is an effective and profitable investment because of its past performance. Over the previous three years, Appen shares outdid “S&P/ASX 200 Information Technology Sector Index and S&P 500 Information Technology Index by over 750%” (Henry Fung, 2019). This company is a viable and positive stock to buy, since the expected spending on artificial intelligence and machine learning is to rise from “$12 billion to $57 billion by 2021” (Fung, 2019).

 

Graph 1

(Fung, 2019)

Additionally, Appen enhance their products by collaborating with leading companies and agencies. This adds value by providing an additional level of human discernment to the raw data (Fung, 2019).

1.3 Share Price History

The historical share price movement of Appen Limited from January 2015 to April 2019 is illustrated in Graph 2. The shares started on $0.63 and rose considerably to $23.74 over a four year period. This substantial increase beginning late 2017 and significantly spiking during 2018/2019. This remarkable growth was the result of Appen’s US $175 million acquirement of improved artificial intelligence training data (Mickleboro, 2019). The demand for the development of artificial intelligence over the recent years has caused the shares to rise dramatically (Mickleboro, 2019).

Graph 2

(ASX, 2019)

More current rising share prices for Appen, during the 6-month period, from October 2018 to April 2019 was from $10.75 to $23.74, spiking in late February, see Graph 3 below. This increased movement of $12.99 demonstrates the company’s immense growth. These two graphs demonstrates how positive and profitable Appen’s shares have become over the past few months. 

Graph 3

(ASX, 2019)

Appen’s dividend yield has also been trending upwards. In 2015 it was less than one cent increasing to four cents in 2019. This is displayed in Graph 4.

Graph 4

(Commonwealth Securities Limited, 2019) 

 

2.0  NIB Holdings Limited

2.1 Nature of Business Operations

NIB Holdings Limited (NHF) is in the insurance industry, NHF offers income, health and life insurance to Australians.  NIB Holdings has four types of insurance, private health, life, travel insurance and health care activities. It has been successful in value adding by diversifying its business, expanding into travel and life insurance.  The company’s strategy is to “provide innovative, low cost health insurance products” (CommSec, 2019).

2.2  Investment Reasoning

“The NIB Holdings Limited’s share price has grown by 53% over the last 12 months and it is increasing.” (Harrison, 2019) The private health sector is a lucrative market that is supported by the Federal government, as it helps to alleviate pressure on the public health system, hence this market should remain steady.  NIB add value to their business by addressing changes so their clients continually buy their product “we recognise there must be ongoing improvement in the industry in meeting customer needs, affordability and cost effectiveness.” (NIB Holdings, 2019).

2.3  Share Price History

NIB’s share price has risen substantially, over the past 4 years, from 2.81 dollars to 5.24 dollars, as displayed in Graph 5. This growth is fueled by increased policy holders and profit. Fully franked dividends also rose from 5.75 cents per share to 8.5 cents per share (Newman, 2019).  These two graphs show that NIB is a long-term investment, yielding great profits for its investors. 

Graph 5

(ASX, 2019)

3.0  New Hope Group

3.1  Nature of Business Operations


New Hope Group (NHC) is a company in the energy sector. It is a diverse Australian energy company that is involved in many operations including the exploration, development, production and processing of coal, oil and gas, in addition to marketing and logistics (CommSec, 2019). NHC’s  diversification of business interests and operations covering coal mining, exploration, port operation, oil, agriculture, innovative technologies and investment (CommSec, 2019).

3.2 Investment Reasoning

Investing in New Hope is a profitable investment because of the how lucrative coal mining is in Australia. New Hope is a great investment because of the mining boom. New Hope adds value to its business because of its diversification. New Hope also gives a sustainable growth and enduring shareholder value through our people and quality assets. (New Hope Group, 2019)

3.3  Share Price History

New Hope’s shares have dropped from $3.03 to $2.88 in 1 month, as illustrated in Graph 6. New Hope has declined recently because of the shift from coal to sustainable energy. This could be because of the upcoming election, with Labour’s increasing chance of winning the election, shareholders have left New Hope as Labour’s main campaign is to promote sustainable energy.

Graph 6

(ASX, 2019)

Graph 7 shows New Hope’s shares over 4 years. It displays that New Hopes shares have been on the incline, spiking during 2018, however declining recently.

Graph 7

(ASX, 2019)

4.0  Evaluation on Investment

Researching and keeping current with the market and economy, facilitates investors to invest wisely in the share market, giving them the ability to grow wealth over time (ASIC, 2019). Global economic risks, like Brexit creates market volatility, especially in the UN. Brexit, however only poses a small risk to the Australian market, as Australia seems to be quite resilient to these volatilities, looking at past experiences (Stevens, 2019).

Investing in Australia’s coal market has slowed, this could be due to the uncertainty in energy policy, as well as the continuing environmental concerns challenging the mining industry (Hall, 2019). Nevertheless, after researching New Hope it was still considered a good investment because of its recent acquisitions, which in turn has increased production volumes for the company. It is a concern for the mining sector however, with the upcoming Federal election and the potential for a Labour government, as they promote more clean energy options (Hall, 2019). The upcoming election does affect investor’s willingness to invest in the share market. Though a change in government shouldn’t affect NIB Holdings, as any political party will avoid major changes to the private health insurance system, as it would affect the public health budget. 

5.0  Evaluation of Share Portfolio

The companies chosen for investment in the portfolio were researched, however the syndicate performed poorly. The syndicate could be improved through more extensive research on the companies and markets, in order to choose a more profitable investment. A more diversified portfolio including more Blue Chip shares across all markets, like the banking sector. Further communication with other people involved in the syndicate would also increase the portfolio successfulness because of everyone’s different perspectives. Less frequency of trading and holding onto stock for a longer period of time would also have benefitted.

6.0 Recommendations

Shares are a very viable long term investment. Future share trading would involve extensive research and analysis into companies, markets and trends. Investing in Blue Chip stocks to ensure steady returns and lower risk, would also be recommended. Companies offering fully franked dividends is also be beneficial to maximise investor’s tax benefits. Investment in a diversified portfolio over a longer period of time is recommended.

Bibliography

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