Regal Pest Control Co. - Strategic Management Paper (part 2)
b. STRATEGIC POSITION AND ACTION EVALUATION MATRIX
The matching tool Strategic Position and Action Evaluation (SPACE) Matrix is a four-quadrant framework that suggests which strategies are most appropriate for the organization or company. This matrix indicates whether the organization should implement defensive, aggressive, conservative, or competitive strategies. The first quadrant is aggressive, the second quadrant is conservative, the third quadrant is defensive, and the fourth quadrant is competitive. The axes of this matrix represent two dimensions in the internal strategic position and two dimensions in the external strategic position. The Financial Position (FP) and Competitive Position (CP) belong to the internal strategic position, while the Stability Position (SP) and Industry Position (IP) belong to the external strategic position. These factors are the most critical determinants of the company or organization’s overall strategic position (David & David, 2017).
x-axis: (IP + CP) y-axis: (FP+SP)
3.57 + (-2.71) 3.38 + (-4.44)
x-axis = 0.86 y-axis = -1.06
After selecting variables that will fall under FP, CP, IP, and SP, a numerical value must be assigned to each variable depending on the comparison of Regal Pest Control Company to its competitors and Pest Control Industries to other industries. Next is to find the average of each position. To determine the coordinates that will be plotted, find the x-axis: add the average of industry position and competitive position. To find the y-axis: add the average of financial position and stability position.
Strategic Position and Action Evaluation Matrix Analysis
The value calculated for the x-axis is 0.86, and for the y-axis, it is -1.06. Plotting the coordinates to the cartesian plane, the accumulated result is that the directional vector falls in quadrant IV, meaning that Regal Pest Control Company must consider competitive strategies. Being situated in quadrant IV means that Regal Pest Control Company competes reasonably well in a quite unstable industry. Therefore, the strategies the company must consider are market penetration, market development, product development, and horizontal, backward, and forward integration.
c. GRAND STRATEGY MATRIX
The Grand Strategy Matrix Analysis is a famous instrument for creating alternative strategies for either small or large companies (Johnston, n.d.). The analysis will be based on the strengths and weaknesses data of the Regal Pest Control Company, where it would help determine the standing of the company, whether its market is rapidly or slowly growing, and also to know a competitive position. With this, the company would learn the appropriate alternative strategies and help them improve and boost the company’s overall operations.
Grand Strategy Matrix Analysis
Based on the figure shown above, the Regal Pest Control Company is situated in Quadrant II, which signifies that the company is in rapid market growth but has a weak competitive position. Although the company has maintained its financial stability and management, it must also work on its competitive edge, particularly in advertising its products and services and increasing market share. To establish a solid competitive position, they must consider adopting the strategy of market penetration, market development, product development and horizontal integration to increase market share that would help the company promote their products and services to their target market. These strategies will help Regal Pest Control to have a competitive advantage in the growing industry of Pest Control.
d. INTERNAL – EXTERNAL MATRIX
According to Strategy Hubbub (n.d.) the Internal – External Matrix is a tool that can be use by any company or firms in examining the current standing or position of the company. The result will be based on the Regal Pest Control Company's internal and external factors in creating this matrix. Moreover, this plays a pivotal role because it recommends strategies that could be very helpful for the company in planning for its future.
Internal – External Matrix Analysis
Based on the findings on the table shown in Internal Factor Evaluation Matrix (IFE) and External Factor Evaluation Matrix (EFE). The IFE falls in Cell I, which has a total weighted score of 2.68, while on the other hand, the EFE falls in Cell V, which has a total weighted score of 2.65. This exemplifies that the outcome of the total weighted scores of the IFE and EFE is described into two categories which are the Grow and Build also Hold and Maintain strategies. The strategies under Grow and Build specifically need market penetration, market development, forward and horizontal strategies that are appropriate to improve the company's growth internally and externally. On the other hand, the company is also under the Hold and Maintain; particularly the strategy underlying this division are product development and market penetration, which is suitable and would give an edge to the company.
e. STRENGTH – WEAKNESSES – OPPORTUNITIES – THREATS ANALYSIS
According to Bonnici and Galea (2015), SWOT Analysis is an analysis that assesses the business's existing strengths and weaknesses and potential opportunities and threats. Internal analysis is used to identify the business finances, skills, key competencies, and strategic advantages. The external analysis identifies business prospects and risks by examining the capabilities of rivals, the industry market, and the overall economy. There are three (3) strategies formulated: Market Penetration, Market Development, and Product Development. Market Penetration will increase the market share or Regal Pest Control by trying different marketing strategies. Market Development will help Regal pest Control in branching out and opening new stores locally to provide services more in the rural areas. Lastly, Product Development will be an essential aspect to consider because this will be used to improve the current product and services that Regal Pest Control provides. These strategies formulated while doing SWOT analysis will be used to improve the overall performance of Regal Pest Control.
INTERNAL STRENGTHS
Client relationship
Every business needs to establish a relationship with their target market because this will serve as a way to know their wants and demands. Regal Pest Control is a company that always puts the customers first and aims to make more frequent customers, the reason why all their services and products are created according to the current needs of the target market. All client relationships of Regal Pest Control are built on trust and experience.
Contract completion on time
Legal certainty is a critical component in promoting profitable business transactions. Contracts are meant to offer stable results and legal clarity to companies (Berger-Walliser et al., 2011). Regal Pest Control always provides a contract to all their business transactions especially to a service purchased by a customer. The contract will be followed, and the services are finished on the time that was written on the contract. This shows how committed Regal Pest Control is and how they built their client relationship by providing an exemplary service.
Financial Stability
Financial stability is a part of overall business stability, including cash flow management, supply of assets allowing the agency to run its operations over a long period of time, effective management of its equity and loan capital, and provision for product manufacturing (Cernavskis, n.d.). This is an essential part of a business because this will ensure that the business has the capability to stay afloat and invest in things that will improve the business. Regal Pest Control is financially stable; with this, the company can grab the opportunities and minimize the impact of unforeseen threats that Regal Pest Control may encounter.
Reliable work
All the business owners know the importance of every encounter and outcome of the services and products that were produced in the company. There are a lot of strategies that were created and implemented to achieve the level of demands of the target market. That is the purpose of all business operations, to provide and produce a reliable product and services because this will be the basis of success in a business. Regal Pest Control is a business that will always put an effort in all of its operations and strategies to provide high-quality products and services.
Product and Service portfolio
Regal Pest Control provides a product and service portfolio used when a customer personally visits the branches. This serves to showcase the products and services that Regal Pest Control provides, and all the information needed to know before purchasing. In a company, it is important to connect the demand of the customers and the company; a service and product portfolio is an example of having that connection in order for the transaction to be less hassle. This strategy is a competitive advantage of Regal Pest Control from other businesses under the pest control industry.
INTERNAL WEAKNESSES
Lack of company website
Companies like Regal pest control experience a lack of a company website that may affect their sales and relationship with their clients. In today’s generation, a business needs to adapt to the demand changes of their customers. Since the generation today is more inclined to technology, many businesses are creating their own websites to connect with the newer generation. There are a lot of benefits of having a company website, especially that it connects the company and the consumers. According to Rasli et al. (2018), consumers benefit from the price comparison, outstanding customer statistics, a broader selection of goods and services, and the convenience of shopping at any time and from anywhere. Customers will be more likely to use and be happy with an online website if they like how it works as a marketplace and the variety of products available. This only shows that Regal Pest Control may experience a decline in customers without a good quality company website.
Mode of transportation
There is no question that transportation is critical in the operation of the business, but much remains to be learned about how an efficient transportation system will increase operational productivity. According to Milewski (2013), time and time savings are crucial for businesses because they enable them to boost their competitive position by lowering costs and improving market access. Investments in transportation development will thereby increase the economic performance of businesses and, in turn, the overall business productivity. Without investing in a more advanced transportation mode, a company like Regal Pest Control may face late deliveries or service due to this problem. The workers and most especially their customers may experience a delay to Regal's services that can be the source of service problems and complaints. If this will be disregarded, then it may cause significant loss for the Regal Pest Control.
Price Competition
A company like Regal pest control has a minimal competitor in the area where the company is located. If there were no competition in the market or industry within the area, companies like Regal would neglect technological development and cost reduction efforts, especially their product and the different services that the company provides. According to Lovering (2019), selling a well-established product at a similar price to competitors is an option for small retailers who want to draw customers to their businesses. It is also essential to know who the competitor is and what they can provide to make a difference according to the consumer's wants. Regal Pest Control needs to have a strategy that will be beneficial for the company if there will be a time where the pest control industry is at its peak.
Lack of modern advertisement mode
Advertising showcases products and services. Regal pest control experience inadequate in the form of modern advertisement. They cannot pace on what is new or trend so that the company can get the same time as other companies in the same industry. If the business lacks modern advertisement, it cannot experience sales growth and cannot promote its business identity. One of the disadvantages of limited advertisement strategies is being unable to promote all the strengths and reach a new target market. According to Bashir and Malik (2010), businesses now face tremendous competition in improving the influence of their advertising to create awareness, drive their sales, and maintain the market. The most important is that advertising will help Regal Pest Control company establish its brand identity.
Limited Partnership
One of the disadvantages of a limited partnership is the extensive paperwork required upfront. It is crucial forming partnerships with different companies, especially a big company that is part of the chemical industry. This is an excellent idea for incorporating the skills and expertise of more than one individual into building a business team that would benefit a small business like Regal Pest Control. According to Ward (2020), business partnerships have many benefits as they allow capitalists to pool complementary skill sets and share start-up costs and risks. It can slow the rate in the business industry of Regal Company due to lack of partnership with others, and this can be a big problem in Regal Pest Control to gain sales, profit, and identity.
EXTERNAL OPPORTUNITIES
Increased demand for services
The principle of demand is vital to the sustainable growth of a company. Growth businesses emerge in areas of the economy where demand is increasing. Demand is a function of both price and quantity. It predicts the amount of a good that will be requested at different price points (Hofstrand, 2019). This will be an opportunity to boost the supplies and improve the services and products of the Regal Pest Control in order to achieve the demands of the customer.
Provide Online Reservations for Services
Prior to making a transaction, everybody conducts some kind of details check. The online websites necessarily entail the buyer to consciously remember something from their previous experience or values about a product from the website which guides them in completing the transaction. This is the reason why a lot of consumers seek knowledge from the website to reduce risk in the event of confusion about the result of an operation (Smith, n.d.). The value of a website in marketing applies to all aspects of Regal Pest Control’s digital marketing campaign. Any form of conversation, piece of content, or advertising that the company posts online will bring the user back to the company's website, which serves as the foundation of its digital platform.
New agreements
It is a collaborative project with shareholders that includes a vertical relationship comprising partnerships with customers and retailers and a horizontal relationship comprising lateral and internal alliances (Purnomo et al., 2018). A partnership is a collaboration between a small business and a medium or large corporation based on shared needs, power, and earnings. This generates new agreements between small businesses like Regal Pest Control and established distributor companies that will collaborate to improve both companies. This will affect Regal Pest Control because there will be some changes in how the company initially operates.
Decreased tax rate
The corporate tax rate, according to data, is perhaps the most detrimental to economic development of all the various forms of taxes. The fact that capital is highly mobile is one of the main reasons for its sensitivity to taxation. Some assets would be stifled by a higher tax rate, resulting in less capital formation and therefore less employees with lower salaries (York, 2018). The decrease in tax rate will be a big opportunity for the Regal Pest Control to make more investments, purchase updated machines and hire more employees. This action will increase the productivity rate and when productivity increases the company’s income increases. According to York (2018) higher productivity contributes to more production and, in turn, higher wages for the company.
Environment
The environment wherein the companies work is a fluid, multi-faceted system and has a lot of consequences. According to Eruemegbe (2015), The term business environment refers to everything that affects a company. It has an effect on the organization's decisions, plans, processes, and overall success. It is important to know the impact of the environment, especially with a small business like Regal Pest Control, because this will help the company generate new strategies like building new branches to broaden the target market and creating a lot of environmentally friendly options to minimize the impact of the chemicals used in the environment.
EXTERNAL THREATS
New Competitors
The threat of new entry business has a significant impact on existing businesses' ability to make a profit, and it can influence the strategic decisions of the business. A company's leading advantage is jeopardized as new entrants join a market selling the same goods or services. As a result, the possibility of potential competitors applies to a company's willingness to penetrate a market. In addition, some new competitors are very territorial, such as within the exact location or zone, where one company wants to compel other businesses to close by lowering its rates or making deals that other businesses cannot match.
Natural Disaster
Natural disasters have an effect on Regal Pest Control because they will throw a business's carefully laid plans and forecasts into disarray, whether the catastrophe is a storm, tsunami, earthquake, mudslides, or something else. Regal Pest Control models may be disrupted, workers may be unable to show up to work, and critical infrastructure or assets may be destroyed. Also, natural disasters can damage physical resources such as structures and infrastructure, and human capital, reducing a business's ability to generate.
New laws
Small companies like Regal Pest Control are expected to be less diverse and much less able to capitalize on economies of scale or reach capital markets. As a result, small companies can meet a threat and are less capable of responding to unpredictable incidents than larger businesses (Dixon et al., 2006). The cost of dealing with a certain law can be roughly equal for smaller and larger companies, putting any undue pressure on the smaller business. To regulate how Regal Pest Control works, rules and regulations have been enacted. Compliance is critical for any business, whether it likes regulations or not. Maintaining a competitive advantage requires staying on top of the rules. Failure to comply could result in fines and possible regulatory problems, causing any business to slip behind its competitors.
Increase of dollar vs. peso for materials
The growing dollar harms businesses with a significant foreign presence because they would trade in a weaker domestic currency. The effect of exchange rate fluctuations on the competition of Regal Pest Control is also possible. Importing commodities becomes more costly as the domestic currency depreciates, potentially reducing the rate of imports. This type of threat can trigger inflation, which can harm businesses who are unable to lift their own costs to keep up with increasing supply rates and employee salaries.
Increase taxes
A tax increase has an effect on a business's costs. When the government collects more taxes than it spends, discretionary revenue is reduced, and business growth is hindered. Furthermore, when an increase in Regal Pest Control tax has the same impact as an increase in costs, higher prices within the business can be passed to the customers.
f. QUANTITATIVE STRATEGIES PLANNING MATRIX
The Quantitative Strategic Planning Matrix (QSPM) is the third stage of the Strategy-Formulation Analytical Framework known as the Decision Stage. This matrix objectively evaluates and indicates which of the alternative strategies are the best. The QSPM consists of both stage 1 and stage 2 of the Strategy-Formulation Analytical Framework, meaning the key external opportunities and threats and the internal strengths and weaknesses from stage 1 or the input stage are listed in the columns along with their weight. The alternative strategies that are resulted from the matching stage or second stage will be examined or analysed to determine which of the alternative strategies are the best or most attractive (David & David, 2017).
Based on the Quantitative Strategic Planning Matrix or QSPM, the market penetration strategy has a Sum Total Attractiveness Score (STAS) of 6.12, market development has 6.72, and product development has 6.96. This indicates that product development strategy has the highest score; therefore, it is the best, most attractive, or more desirable to be implemented. On the other hand, market development’s score came in second, but it is still high, and near the highest score, the reason why it can also be implemented. Therefore, the Regal Pest Control Company should implement specific strategies under product development and market development to increase the company's overall performance.
V. STRATEGY RECOMMENDATION
The following strategies below are the recommended strategies that Regal Pest Control needs to implement based on the results of conducted matrices to improve the overall performance of the company:
Strategy 1 – Market Penetration
Market penetration is a strategy that will help Regal Pest Control to broaden its business horizon by creating and implementing new marketing strategies. Regal Pest Control is a small company, and compared to its competitors, and it lacks proper promotion of their services and products that the company provides. It is best for Regal Pest Control to implement market penetration strategies such as creating an official website to establish a virtual business identity, develop connections to advertising company as well as hiring a famous person in order to help the business promotion to a broader set of audience, and it is also best to create promo bundle service where it will help the business attract new customers and increase the market position of the company.
Strategy 2 – Market Development
Regal Pest Control is a company operating primarily in Metro Manila. It needs to implement market development because this is a strategy that will help the company introduce its products and services to a new business environment. The first step that the Regal Pest Control should do is to branch out outside Metro Manila; creating more store branches will increase the opportunities and expand the scope of business. It is also best for Regal Pest Control to provide an online and delivery of products to make business transactions from all over the Philippines more efficient.
Strategy 3 – Service and Product Development
Service and product development is a strategy that Regal Pest Control will need to create and improve the current products and services they have. Regal Pest Control needs to hire pest control professionals to provide more efficient work in terms of services. Having a partnership with a big chemical company will be a strength to give high-quality pest control products as well as having a more advanced machine to make the business transactions more convenient and lastly, it is best to have feedback from the people who purchased the services and products because this will be a way to know the points of strength and weaknesses that needs to improve.
VI. ACTION PLAN
Despite having a strong internal position and effective strategies, Regal Pest Control also has a lot of things to improve by implementing new strategies that will help the company acquire that competitive position in the pest control industry. These are the action plan for Regal Pest Control according to the recommended strategies:
Strategy 1 – Market Penetration
This is a strategy that is used to improve and increase the performance of small companies like Regal Pest Control by investing and involving the company in different marketing strategies. It is a strategy that entails a far more aggressive marketing campaign to reach further into its existing market and capitalize on all possible prospects for revenue growth in that market.
A. Create an official website for Regal Pest Control
In having an official website, Regal Pest Control will be able to showcase all the services and products that they offer from a wide-range audience. People today are inclined with technology and there is no doubt that with having an official website, Regal Pest Control will attract and gain more customers from different parts of the Philippines. This will also be a way to promote and have that sense of credibility because all the transactions that were made from previous customers will be shown on the official website.
B. Hire Influencers or Celebrities
Now, that there are a lot of people who were given a public platform it is best to use this as an opportunity to connect with a new target market and be able to use their platform in showcasing the services and products by Regal Pest Control. This strategy will help Regal Pest Control to attract new target markets and improve their current services and products depending on the new demands of the target market.
C. Partnership with local TV Networks
In contrast with the influencers and celebrities that were hired to promote the company, improvement in the advertising department would also boost the popularity of the company. The best possible way of advertising the company besides billboards and phone book listings is TV Advertisement through paid partnerships with TV networks in the country. This is a strategy that will attract and inform a wide scope of audience that will be beneficial to the image of Regal Pest Control.
D. Loyalty Card Reward System
Loyalty Card Reward can build the customers' loyalty to the company. Having a Loyalty Card Reward as a strategy can be beneficial to the company to ensure its continued growth of sales and increase the customer's loyalty to the company; the company can choose what best rewards they can offer, such as having additional discounts or a free product. Small companies like Regal Pest Control need this type of marketing strategy to acquire new customers while also maintaining the loyalty of their previous customers.
Strategy 2 – Market Development
It is a strategic approach intended to assist businesses in introducing new goods to the market, expanding their existing scope, or expanding use of their existing products to do new experiences through a new business environment. This is the strategy that will be used in order for Regal Pest Control to branch out from a different area especially in a destination close to the target market of the company.
A. Create new store branches outside Metro Manila
For the first 18 years of the company's existence, Regal Pest Control solely managed all of its clients in the country through its former main branch in Quezon City and when the company moved to its new main branch in Mandaluyong city the company had struggled to provide the service that the customers from other parts of the country wanted from them. This means that the creation of brand new branches outside the NCR would be a big step for the company as it will open more immense opportunities in expanding the range of services that the company would be able to provide to its valued customers. Building more store branches is the primary strategy to expand the scope of the business, especially with Regal Pest Control, because this will serve as a way to grab new target markets from different locations.
B. Online reservations and delivery of products
Regal Pest Control sells different chemicals to eradicate adverse effects of pest infestation, but they need to improve or enhance their marketing skills, such as their online reservation on their website and delivery of products. By this, it can help the company magnetize potential customers and will make the process of transaction more efficient and convenient.
Strategy 3 – Service and Product Development
It is a strategy used to explain the whole process of introducing a new product or service to the market. It is an ongoing strategy in which the entire business is searching for an opportunity as new technologies offer potential growth to businesses, allowing them to enhance their competitive position. This is a strategy that will be used to improve the current services and products that Regal Pest Control provides.
A. Hiring pest control professionals
Hiring pest control professionals during the company's expansion is essential not only to increase the workforce of the company but also to provide a much better and efficient service to the company's customers. This would also increase the number of services that the company would be able to accommodate at a short amount of time during a given time period.
B. Investing to new technology
All the things that we are using today are a product of technological breakthroughs. In fact, today's world is somewhat dependent on the things created by these technological advancements. A small company like Regal Pest Control needs to invest in technology because it will make the service and production more efficient and will serve as a way to increase the production rate of the company.
C. Feedback System
A company needs to know the wants and needs of their target in order for the company to know their next strategies. A feedback system is a strategy that can be beneficial for the company and the customers because, at the end of every purchase the customer is required to send feedback according to their experience in the company. In this way, the customer can share their opinions and be able to acquire their demand for their future transaction with Regal Pest Control. As for the company, this strategy will be a manual for them to know their strengths and weaknesses and implement strategies that will solve the concerns.
D. Partnership with International chemical suppliers
Regal Pest Control has provided an environmentally sustainable chemical product for a long time, but the services and goods offered by the company must improve. It is beneficial for a small business like Regal Pest Control to form a relationship with an international chemical supplier in order to offer an advanced and good quality product, provide better services, increase sales and market share. Collaborating or partnering with foreign suppliers will help the company become more well-known, gain and attract a larger market.
VII. CONCLUSION
The following results have been drawn based on the mathematical outcomes of the various matrices:
Based on the Internal Factor Evaluation Matrix or the IFE Matrix, Regal Pest Control has a rating of 2.68. It scored above average on the IFE Matrix, indicating that it has a decent reputation and a solid internal standing. Nonetheless, this demonstrates that there is still more need for development to strengthen and adequately function without drawbacks. In the External Factor Evaluation Matrix or the EFE Matrix, Regal Pest Control earned a combined weighted score of 2.65. This shows that the company's response significantly affects its current opportunities and threats in the pest control market.
Based on the CPM or Competitive Profile Matrix, Regal Pest Control Company received a weighted score of 2.96, Entech Philippines received a weighted score of 3.67, and TermaxPro Pest Control Services received a weighted score of 3.69. Regal Pest Control Company should boost its strategic advantage and make additional adjustments for factors with low ratings to stay competitive in the future. This is important for the company to keep operating and compete in the pest control industry market.
In the Boston Consulting Group Matrix or the BCG Matrix, Regal Pest Control has four (4) divisions: Termite Control Services, Pest and Termite Control Chemicals and Equipment, Non-Structural Account, and Structural Account. Division 1 or the Termite Control Services and division 2 or the Pest Control Products are situated in the stars quadrant, showing a high relative market share and a high industry growth rate. While divisions 3 and 4 or the non-structural account and structural account are both on the question marks quadrant, which explains that both divisions have a low relative market share position, yet they compete in a high-growth industry.
In the SPACE Matrix or Strategic Position and Action Evaluation Matrix, Regal Pest Control falls in Quadrant IV, which means that the company should consider having competitive strategies. Some strategies must be considered when a company falls in Quadrant IV, such as market penetration, market development, product development, and horizontal, backward, and forward integration. Regal Pest Control is situated in Quadrant II, which signifies that the company is in rapid market growth but has a weak competitive position based on the GSM Matrix or Grand Strategy Matrix. This shows that there should be strategies to be implemented such as market penetration, market development, and horizontal integration to increase their competitive advantage. In the Internal – External Matrix, the Regal Pest Control should implement strategies under Grow and Build such as market penetration, market development, forward and horizontal strategies. It is also essential to use market penetration which is under Hold and Maintain. These were formulated based on the position of the weighted score of both the Internal Factor Evaluation Matrix (IFE) and External Factor Evaluation Matrix (EFE).
The SWOT or Strength – Weaknesses – Opportunities – Threats Analysis formulated three (3) strategies that will benefit Regal Pest Control to improve the company's overall performance and ensure that the company will stay competitive in the pest control industry. These strategies are Market Penetration, Market Development, and Product Development. The market penetration strategy has a Sum Total Attractiveness Score (STAS) of 6.12 on the Quantitative Strategic Planning Matrix (QSPM), market development has a STAS of 6.72, and product development has a STAS of 6.96. As a result, the Regal Pest Control Company should incorporate unique product development and market development plans to improve the overall company results.
In conclusion, Regal Pest Control needs to adapt strategies under Market Penetration, Market Development, and Product Development. This includes creating an updated website with online reservations of products, new partnerships, marketing strategies, investing in new technology, hiring professionals and business systems that will help Regal Pest Control to improve and innovate the company in establishing a solid competitive position in the pest control industry.
VIII. FINANCIAL PROJECTION
The importance of Financial Projection is to know the revenue and expenses and other financial statements of the company from previous years and to project for the upcoming years on what would be the company's finances (Score, 2020). It is a vital part of developing a strategy because this will serve as a gateway to make improvements to the company and provide an allocation to different divisions of the company to strengthen the company’s position.
ACTUAL: REGAL PEST CONTROL CO. (Income Statement)
2019 2020
Service Revenue 5,811,716.69 5,927,951.02
Direct Costs 2,646,019.39 2,698,939.78
Gross Profit 3,165,697.30 3,229,011.25
Less: Administrative &
Operating expenses 2,594,027.96 2,645,908.52
Net Income Before Tax 571,669.34 583,102.73
Tax Due 171,500.81 174,930.82
Net Income After-Tax 400,168.53 408,171.91
The first table shown above is the actual financial statement of the Regal Pest Control company in the year 2019 and 2020. After-tax, the net income is the overall result of the earnings in a period of time that the company has managed to acquire after the deductions from the company's expenses. The Net Income After-Tax result from 2019 to 2020 has only 2% growth due to the Covid -19 pandemic. Since the Philippines' economy is gradually opening, small and big companies are progressively starting to operate once again in their total capacity along with safety measures.
FINANCIAL PROJECTION: REGAL PEST CONTROL CO.
2021 2022
Service Revenue 7,113,541.23 8,749,655.71
Direct Costs 3,238,727.73 3,983,635.11
Gross Profit 3,874,813.50 4,766,020.60
Less: Administrative &
Operating expenses 3,175,090.22 3,905,360.97
Net Income Before Tax 699,723.27 860,659.62
Tax Due 209,916.98 258,197.89
Net Income After-Tax 489,806.29 602,461.74
On the second table shown above is our projected financial statement for the Regal Pest Control company. In which based on the historical data of the previous years. The company would still manage to plan and project the earnings and expenses that the company could obtain from the year 2021 to 2022. And based on the result of the 2021 and 2022 net income after-tax, that increasing amount from these years would help the company decide where to allocate the earnings to invest and enhance its division, such as in marketing strategy; the company could start with developing an official website; improvements on the service of the company to operate efficiently.
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Couche Tard
International conglomorate of gas stations and convenience store chains (Mack's, Circle K, etc.)
Overvalued by 38% with a current price of $62.56, and a present value of $45.23
People from my investing group have been raving about their holdings in Ailmentation Couche-Tard (ATD.B), so I've attempted to analyze the stock.
Financial Health
Profit margins around 3% (5y avg. and normal for competitive retail)
A current ratio of 1.06 (4,477 in current assets to 4,188 in current liabilities) means they're managing a level of debt that isn't too high.
Free Cash Flow growth rate of 3.25% (5y avg., inconsistent)
Valuation
With slim profit margins and little opportunity for revenue growth beyond acquiring more gas stations and convenience stores, Couche-Tard is not a particularly exciting investment, unless it's heavily underpriced. If we discount at 8%, the return I would expect from the market, we arrive at a present value of $15.4b:
Discounted Cash Flows in Millions Projected at 3.25% Discounted at 8% 2019 1,026 950 2020 1,059 907 2021 1,093 867 2022 1,128 829 2023 1,164 792 Terminal Value 16,315 11,103
Total 15,448Shares outstanding429mPresent value per share$36.00
This would imply a fair value of $36.00/share, way lower than the current market price of around $62. I can see 3 potential causes for the discrepency:
The stock market is over-excited about this company. This is generally true for the market as a whole, but unlikely for such an unglamourous business in the uneventful market of retail gum and gas.
Other investors used a higher growth rate. It could be that the 5y historical average growth rate is unreliable.
Other investors do not expect the stock to appreciate at the same rate as the market. They would have used a lower discount rate.
I looked at the stock's statistics to see if there's anything interesting that could factor into my valuation.
Negative Beta
Yahoo! Finance shows the stock beta as -0.37. That means that the stock price has a tendency to move only 37% when the market moves 100%, but in the opposite direction.
I don't know what this means.
Theorhetically, as the market reaches new heights, the stock should simultaneously reach new lows, and eventually hit zero, but obviously that hasn't been the case.
From what I've read about negative beta, assets that benefit from a down market are most likely to have negative ratios (eg. gold, bonds and stocks for companies that provide bankruptcy services). Perhaps this is what one might call a defensive stock?
I compared the 5-year performance of the stock to the S&P 500:
How is it that a stock that has gone up more than 200% in the last 5 years, compared to the 75% of the stock market, can have a negative beta?
It's beaten the S&P 500 over the last 5 years by a lot. Let's see what we get for a discount rate when I use the stock's beta in a Weighted Average Cost of Capital calculation.
WACC
Here is the equation and it's variables:
WACC = E/V × Re + D/V × Rd × (1 + Tc) Variable Description Value E Total equity 7,563 D Total debt 15,250 V E + D 22,813 Re Cost of equity (Market's expected return) - Rd Cost of Debt (avg. interest rate) 0.0322 Tc Corporate tax rate 0.22
The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM) as follows:
Re = rf + β × (rm − rf) Variable Description Value rf Risk-free rate 2.883 β Stock beta -0.37 rm Market return 9.84
Therefore:
Re = 2.88 + -0.37 × (9.8 − 2.88) = 2.88 + -0.37 × 6.92 = 2.88 - 2.56 Re = 0.32
Our cost of equity is 0.32%, or, for the WACC equation, 0.0032.
WACC = E/V × Re + D/V × Rd × (1 + Tc) = 7,563/22,813 × 0.0032 + 15,250/22,813 × 0.032 × (1 + 0.22) = 0.33 × 0.0032 + 0.66 × 0.032 × 1.22 = 0.001 + 0.025 WACC = 0.026
The discount rate for our discounted cash flow, according to the Weighted Average Cost of Capital is 2.6%.
Discounting Cash Flows with WACC
Discounted Cash Flows in Millions Projected at 3.25% Discounted at 2.6% 2019 1,026 1,000 2020 1,059 1,006 2021 1,093 1,011 2022 1,128 1,017 2023 1,164 1,023 Terminal Value 16,315 14,349
Total 19,406Shares outstanding429mPresent value per share$45.23
Couche-Tard may be considered a defensive stock, but market speculation appears to have driven the stock up to dangerous levels (which it's hovered around for the last two years).
A higher beta would have produced a higher discount rate, which would have pushed my present value down even further, and made the stock more heavily overpriced. Using the beta as it's reported, we arrive at a discount rate of 2.6%, which is lower than the risk-free rate, meaning that one would receive a higher return from a 10-year U.S. treasury bond, and with less risk. Therefore, I see no reason to buy this stock, unless you are compelled for some reason to buy the absolute safest stocks around.
1 I've taken the number of floated shares from the Key Statistics section for the stock (ATD-B.TO) on Yahoo! Finance
2 Weighted average interest rate from 2018 fiscal year as stated in section c) of the Notes to the Consolidated Financial Statements in the 2018 annual statement (PDF)
3 The coupon, or return vs market cost, of the U.S. Treasury's 10-year bond was 2.88% at the time of writing (although I was unable to find the 10-year rate on treasury.gov. Could it be that they are no longer issuing 10-year notes?).
4 The 90-year average market return for the S&P 500 is 9.8%, as reported by CNBC
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20 standout players of the MLB playoffs
The Major League Baseball postseason always produces superstars. Some of those who emerge are expected, while some are unlikely players who go from anonymity to household name overnight. That can happen thanks to a hot streak at the right time, a dramatic home run, a surprisingly great pitching performance, or some sterling defensive play.
Here is a list of 20 players who have been the standout players so far during the 2017 MLB playoffs.
Jose Altuve, 2B, Astros
The potential AL MVP had a great regular season, and that has carried over into the postseason. Altuve, for as well-known and well-respected as he is across baseball, has never really had that signature moment or stretch of performances to really establish himself as a major star. In his only previous playoff series — the 2015 ALDS against Kansas City — he went just 3-for-22.
This year, he promptly opened his postseason with a three-homer game, and he hasn’t looked back since. He hit an astonishing .533 against Boston, and has only slightly cooled in the ALCS, hitting a mere .357. He’s a superstar now, and everyone is taking notice.
Yasiel Puig, OF Dodgers
For much of his career, Puig has been better known for bat flips, off-field antics, and on-field mental errors than for star power on the field. Sure, he has always had spectacular plays in him, but it would be fair to say he had never put it all together. Not anymore.
Puig is having an absolutely dominant postseason, hitting .429 and driving in six runs in Los Angeles’s first six games. It’s too soon to say that he’s found something permanently — Puig has had hot stretches before — but if this keeps up, he’ll evolve into a superstar he once looked destined to become.
Didi Gregorius, SS, Yankees
Gregorius was never going to properly “replace” Derek Jeter, though he was given the near-impossible task of doing so. He has done as well as anyone reasonably could have, though, and his clutch performance in Game 5 of the ALDS had a near-Jeteresque quality to it: two at-bats and two home runs against one of the game’s elite pitchers in likely AL Cy Young winner Corey Kluber. Those homers ended up being the difference in the ballgame, and confirmed what many in New York already knew: Gregorius has quietly evolved into one of the game’s better shortstops. Gregorius also added a big two-hit game in his team’s comeback win in Game 4 against Houston.
Justin Turner, 3B, Dodgers
On a team with so many superstars and high-priced players, it’s Turner who is the heartbeat of the Dodger offense. After torching Arizona to the tune of a .462 batting average — including a Game 1 performance in which he homered and drove in five runs — Turner followed it up just as solidly in the NLCS. He has gone 3-for-11 with three walks, including a walk-off three-run home run in Game 2 that made him a cult hero in Los Angeles. Turner is a star — he played like it during the regular season and has proven it during the postseason.
Tommy Kahnle, RP, Yankees
The entire Yankee bullpen could qualify here, but Kahnle in particular is a name that has excelled. He very rapidly blossomed into an elite reliever while pitching for the White Sox in what is currently baseball purgatory. A trade to the Yankees was just what he needed, and he’s been every bit as good for them. In eight postseason innings, he has yet to give up a run. He’s only given up one hit and two walks, good for a microscopic 0.375 WHIP. The Yankee starters had their struggles at times, and they’ve needed to lean heavily on the bullpen. Kahnle has been up to the task.
Dallas Keuchel, SP, Astros
Keuchel is, of course, a former Cy Young winner, so it’s not as if he wasn’t on anyone’s radar. He had, however, fallen off it a bit after an underwhelming 2016 and struggled with injuries through parts of 2017. He’s firmly back on that radar.
While Justin Verlander has gotten much of the publicity, Keuchel has actually outpitched him in this postseason, giving up only one run in 12.2 innings, good for a 0.71 ERA. Opposing batters are hitting just .156 against him. Keuchel has always been an ace — we just needed a reminder.
Jose Quintana, SP, Cubs
Quintana has been really good for a long time — the problem was that it always came with the Chicago White Sox, who never made the playoffs during his tenure. A midseason trade to the Cubs came with some hiccups, but his numbers improved across the board, and his playoff debut has been as steady and assured as the rest of his career has been.
Though he’s yet to win a game, Quintana has only given up two runs in 11.1 innings of action. He’s kept the Cubs in every single game he’s been in — even giving them a brief relief stint in Game 5 of the NLDS against Washington.
Yuli Gurriel, 1B, Astros
The 33-year-old Cuban rookie proved himself to be a fine hitter and was one of Boston’s chief tormentors in the ALDS victory. Gurriel had nine hits in 17 at-bats, including a double and triple, putting constant pressure on the Red Sox. Though he didn’t drive in as many as he liked — he had no RBIs and proved more of a table-setter — he was a massive headache for Boston. His hot hitting continued in the ALCS. He drove in one of the team’s runs in a 2-1 Game 1 win, and he knocked in three in Game 4.
Kenley Jansen, RP, Dodgers
Kenley Jansen has used the big stage of the postseason to cement his status as the best closer in baseball this year. Jansen has pitched seven scoreless innings this postseason, recording a win and a save for the Dodgers. He’s allowed just two hits and one walk while striking out 12. He’s gone more than one inning for the save on two occasions this postseason, including Game 1 of the NLCS against the Cubs where he struck out all four batters he faced. Having Jansen to close out games gives Dave Roberts a Mariano Rivera-like option in the postseason.
Justin Verlander, SP, Astros
Verlander has given the Astros everything they could have asked for since being acquired in a trade, and then some. Not only did Verlander go 5-0 with a 1.06 ERA to finish out the regular season with Houston, but he has continued his hot pitching into the postseason.
Verlander has gone 3-0 in his three starts with a 2.04 ERA and 0.96 WHIP. His Game 2 start of the ALCS against the Yankees was particularly impressive — he struck out 13 in a complete game victory as Houston won 2-1. The Astros’ technology is said to have helped him.
Yu Darvish, SP, Dodgers
Yu Darvish’s time with the Dodgers involved some ups-and-downs during the regular season. His LA debut came with a 7-inning shutout, but then he had consecutive outings in early September where he allowed five runs. So far, it’s been the dominant Darvish who has shown up in the postseason.
Darvish looked nearly unhittable in a Game 3 NLDS win over the Diamondbacks. He went five-plus allowing just one run on two hits. He could have gone much longer, but Roberts used a quick hook in the game. In Game 3 of the NLCS against the Cubs, Roberts let Darvish work a little longer. He went 6.1 innings of one-run ball, picking up the win. Having him to supplement Clayton Kershaw has made a world of difference in the postseason for the Dodgers.
CC Sabathia, SP, Yankees
Sabathia established himself as the Yankees’ stopper during the regular season, as he was dominant following losses. He’s continued the same trend in the postseason. Sabathia came up huge in Game 5 of the ALDS against the Indians, pitching 4.1 innings of two-run ball, striking out 9. He gave the Yankees enough to turn the ball over to the bullpen, which kept Cleveland scoreless the rest of the game. Then with his team trailing 2-0 in the ALCS, Sabathia came out and shut the Astros out for six innings of Game 3 to get the win. He has become a trusted arm for the Yankees this postseason.
Stephen Strasburg, SP, Nationals
Ever since his dominant debut as a rookie, Strasburg has always felt like something of a disappointment — a good, but not great starter who has dealt with injuries and sat out an entire postseason — against his wishes, mind you. In this year’s postseason, though, he looked like the superstar pitcher that many had always dreamed he’d be.
Though the Nationals didn’t win the series, it was no fault of Strasburg. He didn’t give up an earned run in 14 innings, walking three and striking out 22. His second start came in the middle of huge questions about his health. Strasburg gave us the ace-level performance we’ve always wanted.
Jay Bruce, OF, Indians
A little-heralded waiver trade at the time of his acquisition, Bruce was a key reason the ALDS got to five games. He hit .278 with two key homers in the five-game series loss, including the game-tying blow in Game 2 that helped complete Cleveland’s remarkable comeback from 8-3 down in the eventual victory. Bruce is due to be a free agent after the season, and his postseason performances probably bought him a few extra suitors once he hits the open market.
Kenta Maeda, RP, Dodgers
Many starters see their stuff play well out of the bullpen, and that is exactly what has happened to Maeda in the 2017 postseason. An average enough starter during the regular season, manager Dave Roberts has reinvented Maeda as a righty specialist who dominated when thrown into the fray during the NLDS against Arizona. Maeda struck out four in two innings, serving as a vital bridge between the Dodgers’ starters and closer Kenley Jansen. He also threw a scoreless frame and picked up the win in Game 1 of the NLCS.
Maeda will probably wind up back in the starting rotation next year, but it’s easy to see how this relief stint could really give him a shot of confidence.
Masahiro Tanaka, SP, Yankees
Tanaka had taken a back seat to Luis Severino this year after struggling for much of the regular season, but he’s rediscovered his ace form just in time for the Yankees. He was outstanding in the ALDS against the Indians, throwing seven scoreless innings in a 1-0 Game 3 win that helped gives the Yankees confidence to begin their comeback. And, while he was not quite as great in his first ALCS start against Houston, Tanaka only gave up two runs in six innings and kept Houston right in the game. Opponents have hit just .159 against him in his two playoff starts so far.
Michael Taylor, OF, Nationals
Taylor is perhaps the most unlikely star to emerge from the playoffs so far. A career .243 hitter — though he had a fine season for Washington in 2017 — Taylor hit .333 in the NLDS, including a pair of massive home runs. One was a grand slam off Wade Davis to put Game 4 out of reach. For a while, it looked like his three-run homer early in Game 5 might have been the final nail in the Cubs’ coffin. It didn’t turn out that way, but Taylor can still hold his head high after a fantastic series.
Brandon Morrow, RP, Dodgers
Once an extremely highly-touted pitching prospect — the two players drafted after him in 2006 were Andrew Miller and Clayton Kershaw — injuries put Morrow in the baseball wilderness until he re-emerged as a reliever in 2016. The Dodgers picked up him for 2017 and he’s become an absolutely vital setup man for Kenley Jansen. He’s pitched 7.1 postseason innings thus far and given up just two hits and one run. Morrow is a huge reason the Dodgers are so much better-equipped to win in 2017; their bullpen depth is so much better.
Rafael Devers, 3B, Red Sox
For much of the season, Boston’s third base situation was pretty much awful. Devers stepped in and, while the Red Sox were eliminated much sooner than they would have liked in the ALDS, they can take heart from the performances of a young man who was just 20 when he made his postseason debut. Devers hit .364, went deep twice, and knocked in five runs against the Astros, making himself one of Boston’s standout offensive performers. This kid has a very bright future, and now everyone knows it.
David Price, RP, Red Sox
Many will scoff at the Red Sox having a $30 million reliever, but the truth is David Price came up big for Boston in the playoffs. Price entered Game 2 of the ALDS against Houston with the bases loaded and one out in a 4-1 game and was able to escape without allowing further damage. The score remained 4-1 by the time he left 2.2 innings later. In Game 3, he entered a 4-3 game and kept Houston off the board for four scoreless innings. It wasn’t until later that Boston’s offense broke out and exploded for a 10-3 win.
Price’s second season in Boston was derailed by injuries, but his performances in the playoffs gave him and Sox fans confidence that he may still be a valuable contributor over the life of his contract.
from Larry Brown Sports http://ift.tt/2gsI1op
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