115 Company analysis and valuation of Apple Inc., Oracle corporation, IBM corporation and Microsoft corporation,Master''''s Thesis

UWE Dissertation submitted in partial fulfillment of the Bristol Requirement for the MSc in Finance FINANCE DISSERTATION ON Company analysis and valuation of Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation NAME OF STUDENT ID No: 16031462 Intake Supervisor: Prof Dr Pham Thi Hoang Anh September 2018 University of the West of England BRISTOL University of the West of England FINANCE DISSERTATION Name: Ngoc Uyen Luu Student no: 16031462 Supervisor: Prof Dr Pham Thi Hoang Anh Project title: Company analysis and valuation of Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation Date submission: September, 26th 2018 Word count: Executive Summary This dissertation studies the global leading companies in the technology sector are Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation It evaluates all internal and external factors which influence these companies’ performance and prospects to give the investment recommendations to investors Based on the macro- economic analysis, the US and Asia- Pacific is recognised as the regions with the most potential for the development of the technology sector Because of that, technology companies should focus on developing and increasing their presence in these markets The industry analysis represents an intense competition between existing companies Thus, they need to come up with more innovative tactics and spend more on R&D to compete more effective for the coming years In the company analysis, it can be seen that Apple Inc and Microsoft Corporation are the companies have an outstanding performance IBM Corporation is having trouble when its financial ratios show a worsening financial position and its sale growth is predicted to be negative in the next few years The valuation models are applied to calculate the intrinsic values of the four companies The target price of Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation are $188.3, $41.43, $124.64 and $64 respectively Combining all analyses, recommendations are made for each stock Table of Contents Abbreviations Acknowledgements This study was the result of a one-year process of researching and putting in writing during the year of 2017/18 First of all, in order to fulfil this study, I would like to express my great thanks to lots of people for their contribution and help during my research process In particular, special mention and sincere thank have to go to Prof Dr Pham Thi Hoang Anh, my supervisor at Banking Academy VIetnam I could not have completed this dissertation without her careful guidance, right direction and constructive suggestions Last but not least, I also would like to thank my lecturers, my friends and all of authors of the journal article and books that I have given references in my research Chapter I: Introduction .8 An overview on the technology market Area of the study Study objectives Methodology Organisation of the study 10 Chapter II: Macroeconomic analysis .11 I Overview of the global economy in 2018 11 1.1 II US Economy 13 PEST analysis: 13 Key macroeconomic factors analysis: .14 1.1.1 Summary of the US economy: 16 1.2 III European economy 17 PEST analysis: 17 1.2.1 Key macroeconomic indicators analysis: 19 1.2.2 Summary of the European economy: 19 1.3 IV Asia- Pacific economy 20 PEST analysis: 20 Key macroeconomic indicators analysis: 21 Summary of the Asia- Pacific economy: 22 I II III IV V Chapter III: Industry analysis Error! Bookmark not defined Bargaining power of buyers 25 Bargaining power of suppliers .25 III Threat of new entrants 26 IV Threat from substitutes 26 Rivalry among existing players 27 Chapter IV: Company Analysis 28 1.2 APPLE INC .30 SWOT analysis 30 Ratio analysis 34 Valuation 37 1.3 ORACLE 43 SWOT analysis 43 Abbreviations Ratio analysis .49 Valuation 51 1.4 IBM CORP 56 SWOT analysis 56 Ratio analysis .60 Valuation 63 1.5 MICROSOFT CORP 68 SWOT analysis 68 Ratio analysis 72 Valuation 75 Conclusion 79 References 81 Appendices 87 APPL Apple Inc CPI Consumer Price Index CSFTA China- Singapore Free Trade Agreement DPS EBITDA EPS Dividend per Share Earnings before Interests, Taxes, Depreciation, and Amortization Earnings per Share EU European Union GDP Gross Domestic Product IBM International Business Machines Corporation IMF International Monetary Fund IT Information Technology MSFT Microsoft Corporation OECD Organisation for Economic Co-operation and Development ORCL Oracle Corporation P/E Price/Earnings R&D Research and Development ROA Return on Assets ROE UK Return on Equity United Kingdoms US United States I An overview on the technology market Chapter I: Introduction The technology sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology (Bloomberg, 2018) It is considered as a leading sector for growth- based investment This sector performed well in 2017, it had increased 15.6% since the January 2017 (Sands, 2018) However, Brexit caused a decline in the performance of technology sector It creates more risk and uncertainty for the business when just in the UK, according to KPMG report in 2018, 70 percent of tech workers are considering leaving the UK The technology sector is dominated by leading companies, namely Apple (APPL), Microsoft (MSFT) and Facebook (FB) The stocks of these companies had returned 10.8%, 14.8% and 13%, respectively, in December 2017 in compared with their performance in the same period in 2016 These firms carry out their business across the world with the main driver of sales in 2017 being focused on regions: Europe, Asia- Pacific and the US (Datamonitor, 2018) In 2018, the technology sector is forecasted to have an explosive growth (Bajarin, 2017) According to researchers, there will be potential tripling of demand for tech- related goods and services over the next decade With the growth of the importance of technology in society, the technology sector has become a bellwether of the overall stock market and economy II Area of the study This dissertation not only focuses on analysing but also assessing the intrinsic values of largest firms in the technology sector are: Apple Inc., Oracle, IBM and Microsoft The analysis consists of main regions: Asia, Europe and US that these companies operate but US is more focused because this in the region that all companies mainly operate By doing all of these analyses, this study wants to understand deeply the technology sector’s leaders and provide some investment recommendations for investors who have purpose to invest in these companies III Study objectives Objectives of this study are having an overview of technology sector and provide investment recommendations 1) Providing current technology sector insights 2) Analysing crucial macroeconomic indicators of the economies in Asia, US, Europe 3) Analysing technology industry in these regions 4) Base on the financial statements, gearing ratios, profitability ratios, investment ratios of Apple Inc., Oracle, IBM and Microsoft are analysed In the next step, this paper uses the valuation models to calculate the intrinsic value of these companies After analysing and assessing the intrinsic value, this project will provide investment recommendations IV Methodology The top- down analysis method will be used in this project It will start with technology sector economic evaluation, consist of macroeconomic analysis and industry analysis By evaluating these, the project wants to analyse industrial and macroeconomic condition, which are vital indicators of the firms’ potential profit Then, it focuses on companies’ performance and recommend a price, using the valuation models Macroeconomic analysis: This project uses PEST analysis which include: political, economic, social and culture impacts, aim at evaluating the important macroeconomic determinants: inflation, unemployment rate, GDP, exchange rate and CPI Industry analysis: This study illustrates technology sector overview before pointing out the impact of market trends on firms in this industry The determinants affect market competition are analysed also Company analysis and valuation: By using the financial statements of companies, financial websites: IMF, MarketLine, WB and financial databases: OSIRIS, Datastream, this study will evaluate profitability and financial situation of these firms After that, the intrinsic values will be calculated and analysed It combines with SWOT analysis to analyse the strengths, weaknesses, opportunities, threats of companies, give an insight into these firms V Organisation of the study This project is divided into chapters Chapter provides a brief introduction to the area of the study and the objectives of the study The next chapter is chapter evaluates global economy in the recent year and three regions: Asia, Europe and US In the third chapter, the study aims at analysing technology industry’s vital indicators and the factors affect market competition To examine this, Porter’s Five Forces is used as an analytical tool From chapter to chapter 7, there are brief descriptions of chosen companies, their performance and their future forecast The calculation of intrinsic values, investment recommendations are also included in these chapters Chapter is the report summarisation ... fulfillment of the Bristol Requirement for the MSc in Finance FINANCE DISSERTATION ON Company analysis and valuation of Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation NAME OF. .. no: 16031462 Supervisor: Prof Dr Pham Thi Hoang Anh Project title: Company analysis and valuation of Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation Date submission:... technology sector are Apple Inc., Oracle Corporation, IBM Corporation and Microsoft Corporation It evaluates all internal and external factors which influence these companies’ performance and prospects