Case study 4 (Total= 8 marks)

Lucy considers herself a balanced investor. She is interested in investing in the following two (hypothetically) listed stocks on the ASX. She has chosen two stocks listed on the Australian Securities Exchange to research: GHI Energy Corporation (GHI) and RST Technology Group (RST). She has collected the following information from her research:

	GHI Energy Corporation (GHI)	RST Technology Group (RST)
Current share price	$45.95	$50.50
Average return (historic)	7.8%	5%
EPS for the current year	$6	$2.5
Expected earnings growth	9.2%	12.8%
Dividends declared	$2.2/share	$0.8/share
Beta	0.9	1.2
Average PE ratio for their respective industry	10.5	17
Other information
Historical excess returns of the ASX All Ordinaries Index using 10 year term	~6%[1]
Risk free rate - to be sourced	?

She has decided to invest only in one stock and is struggling to choose the best option between GHI and RST. Therefore, she seeks your advice. Provide your analysis and advice (you should reference all the information you used for your analysis). Marks are allocated for accuracy and analysis.

Notes: Risk free rate - You could source current yields by visiting the RBA website and utilising the statistical tables. Do not use the indexed bond as this can be broadly interpreted as a real yield but the technicalities are beyond the scope of this course.

[1]Notes: For the market risk premium, use an estimated value of 6% as the actual estimation is out of scope for this course. For those who might be interested please review the document AER - Rate of Return annual update - December 2023, section 6 "Market risk Premium" which refers to some of the analysis undertaken by The Australian Energy Regulator in determining allowable rate of returns on capital invested in regulated electricity and gas networks.

QN: Provide your analysis and advice to Lucy on which to invest between GHI Energy Corporation and RST Technology Group.