Answer:

Description of the company

Actinogen Medical is the biotechnology company listed under ASX that develops the innovative treatment for the Alzheimer and cognitive decline related to metabolic disease and neurodegenerative diseases. The scientific advisory and management team of the company includes the world known dementia and Alzeimers and it is specialist in designing the drig and management of critical trial (Actinogen 2017).

Ownership governance structure

1. Substantial ownership

• Higher than 20.00% of the shareholdings – there are no shareholders in the company that is holding more than 20.00% of the shareholdings
• Higher than 5.00% of shareholdings – Edinburgh Technology Fund Limited is holding 7.76% of the issued capital and JK Nominees Pty Ltd <The JK Fund A/C > is holding 6.45% of the issued capital (Actinogen 2017).

1. Name of the main people

• Chairman – Dr Geoffrey Brooke
• Board members – composition of the board are as fiollows –
• Dr Geoffrey Brooke – Non-executive Chairman
• Dr Bill Ketelbey – Managing Director
• Dr Jason Loveridge – Non –executive director
• Dr Anton Uvarov – Non-executive director
• Mr Martin Rogers – Non- executive Chairman
• CEO – Dr Bill Ketelbey
• Any of the above mentioned people does not fall under the substantial shareholders who hold more than 20% or 5% of the total share capital. 

3. Key ratios

1. Return on assets (ROA) = (NPAT / Total Assets)

Return on Equity (ROE) = (Net profit after tax / Ordinary equity)

Debt ratio = Total liabilities / Total assets

EBIT/TA * NPAT/EBIT * TA/OE = NPAT/OE

EBIT/TA * NPAT/EBIT * TA/OE = -3181806/10210025 * -3190338/-3181806 * 10210025/9365766 = -0.341

NPAT/OE = -31,90,338 / 93,65,766 = -0.341

Therefore, EBIT/TA * NPAT/EBIT * TA/OE = NPAT/OE

1. TA/OE represents the ratio of total assets with regard to the ordinary equity of the company. It reveals the insolvency risk and measures the exposures of the shareholders against the total assets of the company.  If the total assets of the company increase it will reduce the return on assets and vice versa. On the other hand, if the ordinary equity increases, it will reduce the return on ordinary equity and vice versa.

• ROE is greater than ROA as the amount of total assets is more than the amount of ordinary equity.

Information from ASX websites

Movements of monthly share price

Report on the stock movement

It is identified from the above graphs that the stock of Actinogen Medical is more fluctuating as compared to the stock of all ordinary index. Further, as the stock of Actinogen Medical is more fluctuated it is considered to be more volatile (Actinogen 2017). Further the correlation among 2 funds are calculated as -0.1953, it is regarded as negatively correlated.

Recent announcements

• There was a change in the interest of the substantial holder named as Edinburgh Technology Fund Limited. Their previous holding was 8.06% of voting g power that reduced to 6.77% of the voting power.
• Amgen Pioneer, Dr George Morstyn joined the company as the non-executive director
• As per the Listing Rule 17.1 of ASX, the company was requested to place its securities into immediate trading halt owing to the pending announcement related to capital raising.
• 1^stpatient completed the clinical trial forXanADu Alzheimer’s disease successfully.
• It opened the 1^sttrial site in UK for the enrolment of patients into the XanADu that is the clinical trial which will evaluate the Alzheimer’s disease (Actinogen 2017).

Stock field

4. Calculated beta for the company is 4.41
5. Risk free rate = R_f= 4%, market risk premium = R_m = 6%

Therefore, required rate of return for the company’s share =

R = R_f  + β ( R_m – R_f )

R = 4% + 4.41* (6% – 4%) = 12.82% (Zabarankin, Pavlikov and Uryasev 2014)

• Conservative investment

Actinogen Medical Limited is not a conservative investment as the required return from the share of the company is quite high at 12.82% and the company does not provide any fixed income like dividend (Halili, Saleh and Zeitun 2015).

Weighted average cost of capital (WACC)

As per the annual report of Actinogen Medical Limited for the year ended 30^th June 2017, the company did not have any debt or long term debt. Therefore, the weighted average cost of capital (WACC) cannot be calculated. However, as the total capital structure includes equity only the WACC will be cost of equity that is 12.82%.

Debt ratio 

1. Optimal capital structure

Generally, the ratio of 15% or lower is considered as healthy and optimal capital structure. It can be seen from the above table that the company has the debt ratio of 0.064 for 2016 and 0.083 for 2017 that is lower than 155. Therefore, the company is maintaining the optimal capital structure (Albul, Jaffee and Tchistyi 2015).

1. To maintain the capital structure the company did not borrowed any long-term debt and reduced the amount of trade and other payables through paying the trade and other payables.

Dividend policy

The company did not pay or declare any dividend from the incorporation date. Further, the directors suggested that no final dividend will be paid. The company may not declare any dividends to invest more amounts for further growth through reinvestment of earnings.

Recommendation 

Looking into the above analysis, the company is suggested to borrow further amounts through long-term loan, if required as the cost of debt is generally lower as compared to the cost of equity.  However, it is recommended to include the company in the investment portfolio of the client as the company is maintaining optimal capital structure which in turn exposes it to lower risk of leverage.

Reference 

Actinogen., 2017. Home – Actinogen. [online] Available at: https://actinogen.com.au/ [Accessed 27 Dec. 2017].

Albul, B., Jaffee, D.M. and Tchistyi, A., 2015. Contingent convertible bonds and capital structure decisions.

Halili, E, Saleh, A and Zeitun, R., 2015. ‘Governance and Long-Term Operating Performance of Family and Non-Family Firms in Australia’, Studies in Economics and Finance, vol.32, no.4, pp.398-421.

Zabarankin, M., Pavlikov, K. and Uryasev, S., 2014. Capital asset pricing model (CAPM) with drawdown measure. European Journal of Operational Research, 234(2), pp.508-517.