Question

Q2 Unilever PLC and Burberry Group PLC both have their ordinary shares listed on the London Stock Exchange (LSE). a) At closing on one particular date during the assessment period, write down each company’s current share price (as listed on the LSE) and state their beta. Further, state the date you have used and the source of your information. [2 marks] b) Explain the conclusions you would draw from the two companies’ betas. [2 marks] [Total 4 marks]

Answer 1

a)

Unilever PLC

Closing Share price as on 23 Feb 2020 = 4,476.00 (GBX)

Company Beta 0.26

Burberry Group PLC

Closing Share price as on 23 Feb 2020 = 1,778.00 (GBX)

Company Beta 1.48

b) Beta of a company represents the systemic risk, volatility inherent in the stock of a company. Market beta is considered to be 1. If the beta of a stock is more than 1 it is more volatile than the market, however, if the beta of a stock is less than 1, the stock is less volatile than the market. Here we compare the beta of two stocks. Unilever has a low beta of 0.26 which means it is less risky, and we can expect relatively stable stock price. On the other hand, beta of Burberry is much higher at 1.48 making is more sensitive to changes in market. This underlying difference can also be attributed to the industry these companies operate in, among other factors. Unilever is an FMCG (fast-moving consumer goods) company, which has relatively stable demand all through. Burberry is a luxury brand and its products' demand is greatly driven by economic condition, as people spend on luxury when economy is doing good and they have more disposable income.