Egyptian Stock Exchange - Statistics Project Example

Egyptian Stock Exchange Table of Contents Introduction 3 Project methodology 3 Comparison of return 5 Standard Deviation and comparison of risk 9 Findings 10 Conclusion 12 Reference 13 Introduction The performance of a nation is often analysed on the basis of the performance of the market (mainly capital market). The changes taking place in the external environment have a direct influence on the performance of the market. As for example if there is a news of instability in the government or the inflation figure published by the government is high, soon the share price of companies listed on the stock exchange start declining. On other hand, as soon as the government publishes a healthy GDP or IPP figures, performance of the share price of the companies improve. Hence, the performance of a company on the stock exchange is influenced by several factors relating to political condition, economic condition and other external factors. The analysts take into account the historical data (historical share price) of a company to analyse the trend over the last few years. This analysis is also used to determine performance of the company in future. Other than the investors, many other stakeholders take into account this kind of analysis to determine the financial health of the company. Project methodology In the given project, three sample companies, listed in Kuwait Stock Exchange have been selected. Each of the chosen company belongs to a different sector and the sectors have been selected on a random basis. All the sample companies possess a history of healthy financial performance. Even in the phase of global recession, these companies succeeded in retaining their profitability. After analyzing the past financial performance of the company (net profit, EPS, P/E ratio and few other financial indicators) it can be concluded that these companies are growing at a healthy rate. The sample companies to be used in this project are as follows: Human Soft Holding Co: It is a Kuwait based public shareholding company. It was incorporated on 14-09-1997. The company is engaged in establishing and managing private universities as well as colleges in Kuwait and Arabian Gulf region. It also offers computer education, language training, several executive courses and media services. National Mobile Telecommunications Co: It got listed on Kuwait stock exchange on 17-07-1999 as the first privately owned operator in the telecommunication sector. The company has performed quite well in the past and at present it has almost 93 percent of mobile penetration in Kuwait. United Projects Group: It is a Kuwait based public shareholding company and it got listed on the stock exchange on 04-12-2000. The company is engaged in investment, construction and management of different projects for airport and aviation industry. It also provides services like clearing, water supply and cargo services. For conducting the project, historical share prices of these companies have been extracted from Kuwait Stock Exchange. For the convenience of the project, monthly prices have been collected for three years, 2007 to 2009. Later on, this data have been used to calculate monthly return for each of the company. To get a better understanding regarding the monthly return, average monthly returns as well as the annual returns have been calculated. To analyse the risk associated with each of the company, deviation in the returns have been calculated with the help of standard deviation. Using the results of return as well as the risk associated with each company, performance of the sample companies have been compared to find out which company performed better in the last three years. Comparison of return After collecting the monthly stock prices for each of the sample company from Kuwait Stock Exchange, monthly returns have been calculated. The monthly return explains the growth in the capital invested in the shares in a single year. Hence, the investors are more concerned about the return offered by the company. Apart from the investors, other stakeholders like suppliers and creditors also pay attention towards the return to analyse financial performance of the company. Human Soft Holding Co. K.S.C.C The monthly returns of the company derived from monthly share prices indicate that in the year 2007, the stock price was fluctuating a lot. In the phase of global recession, the monthly return declined and soon it turned negative. However, with improvement in the market conditions and other external factors, the company’s monthly return turned positive. National Mobile Telecommunications KSC After analysing the monthly return of the company, it appears that in 2007, the monthly return was quite poor because the return often turned negative. With global recession, returns further declined however as per month on month basis the return showed little fluctuation. With improvement in market conditions, the monthly return improved but it continued to show variation in returns. United Projects Group K.S.C.C Over the last three years the historical monthly returns of the company fluctuated heavily. High degree of deviation can be seen in the returns of any two consecutive months. Therefore, the monthly returns failed to provide any specific trend. The company belongs to the aviation sector; hence with time the performance of this sector will improve, so monthly return of the company’s share price will also show an improvement. For a better understanding of the return of these companies in the past three years (2007-2009) the monthly returns have been presented with the help of histograms. The above charts indicate that among the selected companies, Human Soft Holding Co. K.S.C.C performed quite well in the Kuwait stock Exchange. Especially from June 2009, the monthly returns are positive. Among the other two companies, National Mobile Telecommunications KSC had almost stable returns but due to the global recession, monthly returns turned negative. In the year 2009, the monthly returns showed major fluctuation. Finally, United Projects Group K.S.C.C is the one which shows major changes in the monthly return throughout the selected time frame, thus the monthly return show wide fluctuations. From the above analysis it appears that it is quite difficult to judge performance of each company on the basis of monthly returns. Therefore, average monthly return for each of the company has been calculated. Average monthly return explains that on an average what the monthly return was for each company in the last three years (2007-2009). Using the average value it becomes quite easy for one to make comparison and to derive conclusion. After comparing the average monthly return for all the sample companies, it appears that only Human Soft Holding Co. K.S.C.C is the one that has a positive value. All the other companies have a negative average monthly return. However, the negative value does not clearly explain that the stock prices of both these companies are performing unsatisfactorily on the stock exchange. The negative value can be due to high fluctuation in the returns during past few months. Hence, apart from average monthly returns, other indicators have also been used to determine the performance of each company. Standard Deviation and comparison of risk The standard deviation measures the fluctuations in the stock price over a period of time. Stocks with high volatility have high standard deviation whereas standard deviation of stable companies is relatively low. It essentially shows how far the returns are dispersed from the mean or average return. Stocks with high standard deviation are considered to be more risky than the stocks having a lower standard deviation. As per the above histogram the standard deviation of Human Soft Holding Co is 0.11417, of National Mobile Telecommunication Network KSC is 0.09267 and of United Projects Group KSCC is 0.12665. This shows that the volatility of United Projects Group KSCC is the highest and that of National Mobile Telecommunication Network KSC is the lowest. Therefore, it can be concluded that the risk associated with United Projects Group KSCC is the highest. On the same side anticipated return from a risky stock is also high. However, the annual return of this company is found to be negative thereby making it unattractive in the eyes of the investor. On the contrary the annual return offered by Human Soft Holding Co is 0.1284 or 12.84% against a standard deviation of 0.11. The return generated by Human Soft Holding Co justifies the volatility associated with the stock returns. Therefore an investor may not mind the risk associated with this stock as one gets compensated by its high returns. This makes the risk-return profile of Human Soft Holding Co more acceptable as compared to other chosen companies. The volatility or standard deviation is highest for United Projects Group but the stock fails to reward the investors commensurately in terms of returns. Ideally, higher the risk of the company higher must be the return otherwise an investor does not have any incentive of investing in a high risk company. Going by this the return offered by United Projects Group must have been the highest but this does not hold good as the return offered by this stock is negative. From the risk-return analysis it is clear that this is justified only for Human Soft Holding Co. Findings The growth of a company can be assessed from its fundamentals. Besides this the historical share price of the company can be analyzed to assess the trends in the price movements. The market price of the company is a reflection of the market sentiments. If the investors are confident about the company fundamentals they respond by increasing their long position in the company. On the other hand, if the investors are wary of the company fundamentals they avoid the stock or take a short position in it. Short-selling is done to make gain out of deterioration in the share price once the market is able to assess the weak fundamental which is followed by a fall in the company’s share price. The annual return generated by Human Soft Holding Co is the highest among the three selected companies. In fact the monthly returns on the stock have mostly been positive as compared to others. Over the last three years the annual return generated by National Mobile Telecommunications KSC is negative at 0.16 or 16%. For most part of 2007 the monthly return offered by National Mobile Telecommunications KSC has been negative. Similarly, the annual return generated by United Projects Group over the last three years is also negative at 0.04 or 4%. An analysis of the historical price trend shows that Human Soft Holding Co is the company with the most growth potential. This is evident from the positive annual return generated by the company over the last three years. On the other hand the return of the other two chosen companies is negative indicating that the investors are not confident about the company fundamentals resulting in less demand for the shares of these companies. On account of limited demand the share price of these companies has also reduced over the last few years as reflected from their negative returns. The volatility of these stocks is also high as evident from their high standard deviation. This suggests that the stock returns are widely dispersed from the average or mean returns. Therefore, as per the historical price charts the growth rate of Human Soft Holding Co is more as compared to the other two companies. The historical data analysis can be corroborated by an analysis of the company financials to evaluate the rate of growth. The net profit of Human Soft Holding Co has more than doubled from KD 0.342 million in the year 2008 to KD 0.864 million in 2009 (Kuwait Stock Exchange-a, “Yearly Financial Data”). The net profit figure of National Mobile Telecommunications was KD 0.08242 million and this increased to KD 0.108 million in the next year; signifying an increase of merely 30 percent (Kuwait Stock Exchange-b, “Yearly Financial Data”). The net profit of United Projects Group was KD 0.00174 million in 2008 and this doubled to KD 0.0040 million in the following year (Kuwait Stock Exchange-c, “Yearly Financial Data”). The growth rate in profit has been highest for Human Soft Holding Co indicating its superior growth rate. Therefore the analysis of the price trends as well as fundamentals shows that Human Soft Holding Co is a faster growing company. This is supported by the rise in the company price. At the beginning of the three year period the share price of Human Soft Holding Co was KD 240 and this increased to KD 285 at the end of December 2009. On the other hand the share price of National Mobile Telecommunications was KD 2880 in January 2007 and this decreased to KD 1520 as at the end of 2009; which is a fall of close to 50 percent. This is true for United Projects Group as well; the market price of the company’s shares was KD 365 at the beginning of the year 2007 and this fell by nearly 48 percent to KD 246 over the last three years. The appreciation in the share price has been the highest for Human Soft Holding Co whereas it has not been favorable for the other two companies. Both in terms of price appreciation and fundamentals Human Soft Holding Co is better placed than the other two chosen companies. This suggests that Human Soft Holding Co is a faster growing company. Conclusion An analysis of the historical share price and share price volatility shows that the market is more confident about the growth prospects of Human Soft Holding Co. The standard deviation of the company is high but this has been compensated by the high annual positive return of 12%. This means that the company is suitably rewarding the investors for the risk borne by them. The volatility of the other two companies National Mobile Telecommunications and United Projects Group is also high but the returns generated by the company fail to match the risk, taking off the sheen from these stock. Reference Kuwait Stock Exchange-a. YEARLY FINANCIAL DATA. 2008. HUMAN SOFT HOLDING CO. October 19, 2010. . Kuwait Stock Exchange-b. YEARLY FINANCIAL DATA. 2008. NATIONAL MOBILE TELECOMMUNICATIONS. October 19, 2010. . Kuwait Stock Exchange-c. YEARLY FINANCIAL DATA. 2008. UNITED PROJECTS GROUP. October 19, 2010. < http://www.kse.com.kw/PORTAL/Stock/StkFI.aspx?stk=640&V=4>. Read More