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Investment Analysis and Security Valuation to a Real Life Situation - Research Paper Example

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Recommendation for a security on the Tadawul stock exchange (Name of Student) (Name of Institute) Abstract The paper presents the real life snap shots of a selected security on the Tadawul stock exchange with the objective to analyze and valuate it before giving a buy recommendation to a client by the small investment firm KSA…
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Investment Analysis and Security Valuation to a Real Life Situation
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Download file to see previous pages The scrip of the Almarai Company under the agriculture and food sector has been given a buy recommendation as it is a bull in the market which is also outperforming most of the other players of this sector. Almarai Company is one of the attractive stocks on the Saudi Stock Exchange Tadawul. The stock is actively traded. Eqarani (2012) has reviewed Almarai to be the largest integrated dairy company in the world, with a well recognized brand that was ranked number three in Forbes’s ‘Top-40 Arab Brands’ list. A snap shot taken out of the exchange and presented as Fig 1 depicts its active trading patterns. Fig1 The company has the authorized capital of 4000 million Saudi Arab Riyals and has issued 400 million shares of par value of 10 Riyals. The stock is trading at a level above 50 Riyals on Tadawul stock exchange. The company has a paid capital of 4000 million Riyals and its floated issued shares are 165,409,795. The company belongs to the agriculture and food sector which is a tremendously growing sector of the economy of Saudi Arabia. The growth for this sector on the Tadawul in last one year is 29.21%. There are reasons. Saudi Arabia is the largest market in the middle-east for agricultural and food products. This sector of economy in Saudi Arabia is growing at a GDP of 8%. Agriculture products in Saudi Arabia account for more than 25% of the private sector investments. The companies not only produce for the local market but they are eying the export market also in the surrounding middle-east countries. All the more, the Saudi government has set its priority on becoming self dependent on the food front because still it is importing 70% of the food items. It is boon time for companies including multinationals for meteorically rise in this progressing economy. Almarai Company already holds a significant place in the economy. The company enjoys a robust health and is a mature company. It was established way back in 1977. The then chairman of the company Prince Sultan bin Mohammed bin Saudi Al Kabeer worked with a vision to transform the tiny dairy farming industry into an efficient and professional giant that should be able to cater to the growing demands of its population and that too by making its products available at affordable costs. A few graphs presented below depict the consistent good performance of the company in last few years. Graph 1 (Years range from 1 to 4 on X-axis is 2008 to 2011) The Graph 1 shows that the revenue earned by the company is rising at a consistent rate of 8 to 10 per cent each subsequent year. This is an indicator of robust market position of the company. Graph 2 (Years range from 1 to 4 on X-axis is 2008 to 2011) The scenario of operating income is comfortable. The operating income in Dec’ 2011 is 1517 million riyals incrementing by 59 million riyals in comparison to the operating income level of 1459 million riyals in Dec’2010. In contrast to this the incremental enhancement in the operating income in Dec’2010 was 494 million riyals in comparison to its level of 965 million riyals in Dec’ 2009. This is a point of concern but at the same time the capital investment in the expansions done by the company explains this low incremental increase in Dec’2011. It is not that heavier in comparison to ...Download file to see next pagesRead More
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