Comparing Ordeoo Qatar and Qatar Electric and Water Company - Essay Example

Comparison of Ordeoo Qatar and Qatar Electric and Water Company Comparison of Ordeoo Qatarand Qatar Electric and Water Company Qatar Economic Analysis: Qatar has been made a targeted market by most of the multinational organizations for business ventures in the recent years because of its flourishing economy. It should be noted that Qatar brought major changes in its fiscal policy in 2012 that resulted the economic development to reach higher reserve rates. In 2014, Qatari economy has reached its target of becoming one of the stable economies of the world. One of the major reasons behind the blooming economy of Qatar is its reliance over natural gas. Economic management of Qatari market has enabled the country to make use of right policy at the right time. It is due to the effective fiscal policy that it has been included among countries that are yielding increased business practices in the shortest span. Most recently, the Qatari economic policymakers have served their vision in bringing foreign investment at home because they aim to expand their technological and engineering practices as well. On comparison, the picture of effective economic boom in Qatar was unexpected in 2009. It was merely because there were increased cut in the prices of oil. Therefore, it was difficult for Qatari lawmakers to come up with policies that would have resulted in increase exchange rates. However, in 2014, there are more than 46 technological and engineering projects that are expected to be completed within next 10 years (Books LLC). As per the statistical reporting, it has been noted that Qatar is considerably the 30th freest economy in the index of 2014. In particular, the economic score of Qatar is marked 71.2. This measure of economic freedom is not just limited to labor freedom but monetary freedom as well. Overall growth in the gross domestic product (GDP) of Qatari economy is noted to be more than 6.8% in 2013. In other words, it can be said that the difference noted in the GDP of Qatari economy was marked to be 8%. As per the policymakers, the increase in the GDP was possible because of change in natural gas and oil that allowed the country to make effective use of its reserve (International Business Publications). Talking about the inflation rate of the country, it was expected that the country’s inflation rate would increase up to 3.6% where it was marked less than 2% in 2012. As per economic analysis of 2013, it was noted that the inflation rate would remain stagnant. Herein, it is imperative to note that increase in the rate of inflation is supposedly affecting the consumer prices. As noted above, the major contributor of the economic development of Qatar is the measure of its capital on export of oil and gas. The fact to be noted here is that in case there is a fluctuation noted in the natural fuel market than it is probable to affect the economic stability of Qatar as well. The focus of fiscal policy is to make sure that the debts abroad associated with the Qatari economy are paid. It is due to this reason that the policymakers are making sure that less expenditures are observed for internal setup of industrialization structure (Fromherz). In addition, the rate of unemployment has been noted to stay negligible in comparison with other GCC countries. The major difference that has been noted in decrease of unemployment rate was 0.50 percent in 2012 that further got a cut down to 0.48 percent in 2013. In the same fashion, the stock market of Qatar has been noted to undergo a terrific performance in 2013. Up till now, it has been marked that the index of Qatar stock market has been noted to 10789 in 2013 which is so far the best record of Qatar stock index (Gray). Qatar Utility Sector Analysis: It will not be incorrect to note that the utility sector of Qatar is undoubtedly among the largest and attractive utility sectors of the world. In recent times, the sector has been made open for the foreign organizations to come and work with because Qatar aims to make minimal consumption of water and electricity by using production and consumption methods which are cheap as well as energy-efficient (Gray). It should be noted that the utility sector of Qatar has been able to bring a lot of venture into working. There are a number of initiatives that have not only allowed the sector to become powerful in terms of its focus of working but also proposing the best generation plants for water. Currently, independent plants that is able to generate 2,730 mega volts of energy as well as water capacity of 63 million gallons in a single day. Currently, there are numerous tenders that are being placed in order to implement production of energy. Other than the tenders, there are projects for construction which will allow the construction companies to get hefty amount of profit on making tunnels of at least 600 meter length (Books LLC). In the similar manner, the telecommunication industry of Qatar has been marked as higher in terms of value. It should be noted that the industry is meeting high-ends of profit each year. As per the statistics, it was marked that the usage of mobile phone subscription, broadband and fixed landlines have increased. It should be noted that there are many famous telecommunication organizations that are currently operating in Qatar. These service providers include Vodafone, Ooredoo etc. There is a lot of competition between these companies as the consumers are opting for plans that are providing them with increased number of data transfer facility (International Business Publications). Likewise other sector of the economy, the telecommunication sector of Qatar is also expecting foreign direct investment in the industry. It is expected that with the emergence of new brands, the competition will yield development with the telecommunication industry of Qatar. Also, with this competition, the users are more likely to increase making it an ideal market for making profits. Herein, it should be noted that the consumption in the mobile data was marked in Qatar as lowest in 2011. It was due to this reason that a number of companies changed their minds for working in telecom industry (Books LLC). The authorities of the telecom industry made use of campaigns that provided an attractive rate for entry for users. This yielded increased number of user interface within telecommunication industry. In the wake of new policy implementation, increased penetration was noted in the telecommunication industry of Qatar. Also, the tariff of each company also improved by large. It should also be noted that the government has provided a good capital for the research and development for increasing success rate of the telecommunication industry. One of the factors that had become a barrier for the telecom companies in Qatar is the lack of transparency in the policies of government. There are taxes that are implied on the service of telecommunication tariffs that are not justified by the government. They are directly imposed by the government. Despite this aspect, there are many people who claim that increased penetration overcomes this issue as the user base keeps increasing in Qatar telecom industry. Up till now, it has been noted that India has performed well in terms of telecommunication market but it is expected that by 2016, the telecommunication sector of Qatar is expected to be more successful with its increased user base and attractive service tariffs that would allowed the users to experience the best telecom services so far (International Business Publications). Ordeoo Qatar Introduction Oredoo Qatar is a huge company that operates in more than 9 countries. It concentrates its business in telecommunication sector including the mobile and broadband internet connections. In the last six years, it has shown notable growth; it has been the fastest growing telecommunication company in terms of revenue since 2006 (“Ordeoo Overview”). Detailed assessment of the company’s financial performance is as follows: 2009 2010 2011 2012 2013 Current Ratio 1.01 1.73 1.01 1.05 1.21 Debt/Equity 1.15 1.28 0.81 0.87 1.15 The current ratio of the company is improving over the period of time. It’s just in 2010 that the company maintained some extra current assets otherwise Oredoo has been maintaining the current ratio close to 1, which shows that it is least interested in maintaining the current assets in excess of the requirement as per current liabilities. This shows that the company is more interested in investing in long term investments and ventures so that the overall value of the company improves. Debt to Equity ratio of the company is also close to 1 which indicates that the company is least interested in getting external creditors’ extra involved in the affairs of the company. This also proves that the company is restricting the interest costs from increasing beyond certain level. Since company is new, it is good for it have more equity financing because shareholders’ dividends can be retained for some time but creditors have to be paid irrespective of the company’s profitability and liquidity. Cash Flow Ratios 2009 2010 2011 2012 2013 Operating Cash Flow Growth % YOY 77.35 2.74 -22.1 48.12 -2.39 Free Cash Flow/Sales % 0.41 11.35 3.46 10.56 5.15 The cash flow growth of the company is a bit perilous. It is facing ups and downs in the cash flow growth which casts doubts over the company’s liquidity health. However it is evident that the company has achieved cash flow growth over the period of last 5 years. Whether Oredoo has been successful in improving its cash flow position or not can be observed from its turnover ratios also: Receivables Turnover 14.79 13.66 13.67 12.49 11.96 The receivables turnover ratio has improvement over the period of time; 14.79 in 2009 as against 11.96 in 2013. This shows that the management of the Oredoo is also considerate about the liquidity position of the company and is making active arrangements to stabilize it. Detailed analysis of Oredoo’s financial indicates that the company has not been able to make significant increase in the profits; this is the main reason of variation in the cash flow position of the company. Cash flow gets better along with the improvement of the company’s profitability. Net income 2,825 2,888 2,606 2,944 2,579 Above trend indicates that the company is attempting to stabilize its income rather than increasing it. This approach is hurting the company on other fronts also. For instance, the company is not able to pay appropriate dividends consistently. During the year 2010, 2011 and 2013, the company has not been able to pay more dividends as compared to the previous year. This does not maintain the confidence of the shareholders. 2009 2010 2011 2012 2013 Dividends per share 3.91 2.79 2.01 5 4 Dividend Payout ratio 36.34 25.39 20.02 51.21 49.88 Source: (“Ordeoo Annual Report”) Moreover the company’s dividend payout ratio indicates the defensive approach of financing. Payout ratio is also inconsistent which indicates that the company is not able to save more to pay its shareholders. The shareholders expectations may also be worried about the total asset position of the company. 2009 2010 2011 2012 2013 Total assets 84,961 101,398 102,334 94,205 97,415 Since 2009, on average, the company has not made any significant achievement in improving its total assets position. The fluctuation in the assets shows that the company is not in stable position. Detailed percentage wise break-up of the assets is shown below for further analysis: 2009 2010 2011 2012 2013 Cash & Short-Term Investments 13.55 25.22 20.79 15.95 20.99 Accounts Receivable 2.15 2.15 2.41 3.11 2.8 Inventory 0.3 0.31 0.34 0.38 0.55 Other Current Assets 2.79 2.52 3.28 3.34 4.78 Total Current Assets 18.79 30.21 26.82 22.78 29.11 Net PP&E 35.04 31.73 32.36 34.49 33.17 Intangibles 40.14 32.82 35.95 36.87 32.31 Other Long-Term Assets 6.03 5.24 4.87 5.85 5.4 The above break-up shows that the company has not been able to build its long term assets; rather its non-current assets deteriorated. In 2009, non-current assets occupied more than 80% of the total assets as against 2013 in which it has just 70% non-current assets. This shows that the company is unable to invest the amount for the increase in total shareholder value. Despite the deteriorating position of the company’s assets, it’s increasing cash balance show that the company is saving it to settle the short term liabilities first. This is alarming as cash should have been invested for the betterment of the company’s financial position. Further, the decrease in intangibles show that the value of the company’s assets like licenses, brands and software is also decreasing which hints the possibility of the technology getting obsolete. The company must invest in its intangibles to be in line with the current trends. Forecast Income Statement for 2014 and 2015 In the light of above analysis, the projected income statement of Ordeoo is as follows. Projected income statement shows increase in net income which is actually required by the company by that time. It is possible that the extra ordinary items are reduced to a minimum extent which may increase the profits further. 2014 2015 Revenue 35,099 37,133 Operating income 7,455 7,776 Pretax income 5,248 5,648 Income before extra-ordinary items 3,379 3,709 Net income 4,118 4,486 The P/E ratio of the company is 16.74 (Ordeoo Overview). This indicates that the shareholders are anticipating excellent results from the company. It is positive for Ordeoo because it has been facing variations in performances and yet it has gained the confidence of the shareholders. Qatar Electricity And Water Company Introduction Qatar electricity and Water Supply Company (QEWC) is the second biggest utility provider in Middle East. It operations primarily focus on the provision of electricity and desalinized water. It occupies more than 50% market share in both the utility markets. Growing economy and population of the company enabled it to expand faster, which made it a highly profitable company (“QEWC Summary”). Following are the financial highlights of the company over the last 5 years. 2009 2010 2011 2012 2013 Current Ratio 0.99 0.75 0.91 0.86 2.17 Debt/Equity 1.07 3.01 3.99 5.87 0.53 The company has maintained quiet risky current ratios; it has always been decreasing except in 2013 in which it maintained the current ratio of 2.17. This indicates two main points; firstly, the company has been interested in building long term assets and secondly, it has been confident about the future planning regarding the liabilities’ settlement. The debt to equity ratio has somehow been in significant variations over the period. In 2009 and 2013, it has been close to 1 as against the remaining three years which show the ratio above 3. This indicates that the company resorted to external financing and then paid them off. This is a positive signal as shareholders will now be left over with more residual income to be paid as dividends in the absence of creditors. This ratio again indicates a positive sign about the company’s excellent planning that the company took loans for some time with an aim to pay them off in short period of time and it did that successfully. Cash Flow Ratios 2009 2010 2011 2012 2013 Operating Cash Flow Growth % YOY -5.49 -4.18 84.77 -34.36 -12.91 Free Cash Flow/Sales % 25.29 26.34 26.48 25.27 25.35 The cash flows generated from operations are continuously decreasing at QEWC. This may be because of the receivables and inventory turnover cycled. However, free cash available indicates that the company is able to improve its liquidity. QEWC must have taken some serious steps to increase its cash flows. Inventory turnover of the company can be taken as an instance to it. 2009 2010 2011 2012 2013 Inventory Turnover 5.48 6.65 7.68 6.1 4.3 Above inventory turnover ratio indicates that the company is attaining efficiencies in reducing the conversion of inventory into sales. This will enable the company to generate cash more quickly which will assist in keeping the debtors and other stakeholders more satisfied Above efficiency and financial ratios have showed their positive impacts on the profitability of the company as shown below: 2009 2010 2011 2012 2013 Net income 944.87 1198 1299 1436 1384 The net income of QEWC has been increasing on consistent basis which has added to its growth and shares market value. The fact that the company did not grow well in 2013 was because of the political turmoil in Arab world which brought its impact across the Middle East. QEWC also became a victim of that political disturbance. However, as evident below, company did not let the investor’s confidence go down. Despite the decrease in profits, cash dividends were increased per share which indicates that profitability decline did not impact the liquidity of the company. 2009 2010 2011 2012 2013 Cash dividends 5 5.5 6 6.64 6.82 Dividend payout ratio 52.92 50.07 50.01 50.82 54.19 Source: (“QEWC Annual Report”) The dividend payout ratio of the company shows the consistency in following the intentions of the management. The company has been paying off more than 50% of the profits as dividends, yet it is growing. The increase in the profits and assets of the company over the period of the year proves the well-planned utilization of the retained profits. The expectations of investors have been met by the management over the period of time which can be seen by total Assets position of the company. 2009 2010 2011 2012 2013 Total assets 18,048 22,158 22,485 11,551 11,025 The above position looks very disturbed in 2012 which is because of the change in accounting treatment. However, QEWC showed increasing trend in assets in 2010 and it is still maintaining its assets’ position of 2012. The detailed analysis of the company’s total assets is as follows: Balance Sheet Items (in %) 2009 2010 2011 2012 2013 Cash & Short-Term Investments 15.68 10.99 15.14 17.1 15.65 Inventory 1.52 1.33 1.36 2.1 2.5 Other Current Assets -0.35 5.57 5.91 4.75 6.83 Total Current Assets 16.85 17.89 22.41 23.95 24.98 Net PP&E 59.08 27 23.41 21.66 45.84 Intangibles — 0.49 0.14 0.46 1.15 Other Long-Term Assets 24.06 54.61 54.05 53.94 28.03 Total Assets 100 100 100 100 100 The above percentage break up shows that the company is increasing its current assets. This increase is because of the increase in current liabilities as the company needs also to maintain the current ratio at a persistent level. It seems good that the company has increased its long term assets over the period of time. The property, plant and equipment’s percentage increased sharply in 2013. Similarly the company is also expending on intangibles which reveals the dynamic vision of the management towards development. However the increase of property and intangible has been made possible by compromising on the percentage share of long term assets which included investments. This indicates that the company is more focused on expanding its core operations rather than just diversifying its investments’ portfolio. As a result of market expectations, the P/E ratio of the company is 13.36. (QEWC Summary). This shows that investors are anticipating high returns from the company depending upon its past performance and forecasts. Forecast Income Statement for 2014 and 2015 As per the analysis and other financial circumstances surrounding the company, projected income statement of QEWC is as follows: 2014 2015 Revenues 3,349 3,608 Gross profit 2,031 2,211 Operating expenses 1,166 1,281 Income before extra-ordinary items 1,510 1,641 Income before tax 1,480 1,615 Net income 1,468 1,607 The projected income statement of QEWC shows increase of 100 M Riyals and 200 Million in subsequent years, which is as per the income trend of the company. The operating expenses of the company will also decrease in 2015, which shows that the company’s objective of achieving efficiency will be turned into reality. Comparison Of Both Companies And Conclusion Current Ratios: If current ratios of both the companies are considered in isolation then they do not play any significant role in isolation to impact the decision to be invested. Both the companies are maintaining their ratios at similar level. Yet, QEWC should be preferred in terms of current ratio because it maintained ratio well below 1 for four years and then increased it in 2013 as per the circumstances. This shows that the company has flexibility to change as per requirements. Equity Ratio: As at 2013, the equity ratio of QEWC (0.53) is better than Oredoo (1.15). This implies the power of shareholders in decision-making more in QEWC as compared to Oredoo. Cash Flows: Cash flows of QEWC are much better than Oredoo. Moreover, it has free cash available for investment in future which will add to the growth of the company. Profits: There has been substantial increase in the profits of QEWC as compared to Oredoo over the period of 5 years. This makes it attractive for investment as shareholders are primarily interested in dividends and capital growth of the company. Increasing profits will bear more dividends and more capital growth for the company. Dividends: Similarly, QEWC is less conservative in paying dividends as compare to Oredoo. This makes it a bit more beneficial for investors as QEWC has been paying 50% dividends on consistent basis. Moreover the amount of dividend per share at QEWC is more than that paid by Oredoo. This also makes QEWC, an appealing company to be invested. Total Assets: The total assets of QEWC are increasing more rapidly as compared to Oredoo. This will also increase the share prices in future. Dividends are the short-term motives of investments; the real long term objective of the investment is capital gain on investment. The increase in total assets of QEWC indicates that it will provide more capital gain on investment as compared to Oredoo. The capital gain is also evident from the comparison of the break-up of the assets of both the companies. Oredoo’s non-currents are decreasing in contrast to QEWC; whose non-current assets have increased. Following are the share prices of both the companies for the last 5 years which show decreasing trend for Ordeoo and increasing trend for QEWC. Ordeoo Qatar Share prices from May 2009 - May 2014. (Ordeoo Historical Prices, 2014) Qatar Electric and Water Company from May 2009 - May 2014. (QEWC Company Performance, 2014) In addition to the above considerations related to individual companies, the macro-economic environment of Qatar and each company’s sector’ performance also play an important in deciding about the company to invest in. now that the Arab Spring has been contained and Qatar’s economy is growing, it is feasible to invest in Qatari companies. But question still holds regarding the sector in which the investment has to be made. Although both the sectors are progressive in nature, it is safe to invest in QEWC since it is more related to basic necessities, which make its business more resilient against the changes in consumer choices. In the light of above discussion, it is better to invest in Qatar Electric and Water Company rather than Oredoo Works Cited “Ordeoo Annual Report". Financial. Doha: Oredoo Qatar, 2013. Print. "Ordeoo Overview". 2014. Web. 24 May 2014 . "QEWC Annual report". Financial. Doha: Qatar Electricity And Water Company , 2013. Print. "QEWC Summary". 2014. Web. 24 May 2014 . Read More