Financial Performance of Qatar Water and Electricity Company - Case Study Example

Company analysis

Qatar water and Electricity Company

Company profile

Qatar water and Electricity Company (QEWS) was established in 1990 as a private company that specializes in electricity generation and water distillation. It is largely a private company established under the commercial company’s law’s provisions. The company is made up of one billion and one million Qatar riyals which are equivalent to one hundred and ten million shares which are fully paid. Individuals and other private companies own 48 % of the shares while the state of Qatar owns the rest of the shares 52%. It is the primary supplier of electricity to Qatar since it is the largest supplier in the Middle East with a water market share of 62% and that of electricity at 79%. It generates 5432 MW of electricity which is over three-quarters of Qatar total electricity supply and water distillation at 258 MIGD close to the countries total of 328 MIGD. The company mainly deals with water and electricity and is currently undertaking numerous projects to expand its power supply. The table below represents the subsidiary companies and ownership percentage

• Subsidiaries & Associates

Company

Principal Activity

Country

ownership

Qatar Power Co.

Power Generation

Qatar

55%

Masaieed Power

Power Generation & Water Desalination

Qatar

40%

Ras Laffan Operating Co. Ltd.

Power Generation

Qatar

100%

Ras Laffan Power Co. Ltd.

Power Generation

Qatar

80%

Ras Girtas power company

Power generation

Qatar

45%

AES Oasis Ltd

Power generation

East Amman

39%

(Gulf base. 2016)

Management

• • Board of Director

• • • Chairman:

Abdulla H. Al Attiya

• • • Vice Chairman:

Eisa S. Al Ghanem

• • • General Manager:

Fahd H. Al Mouhanadi

• • • Board Members:

Adel A. Al Meslmani Khalid M. A. Al Attiya Khalifa A. Al Hitmi Sh. Hamad J. J. Al Thani Sh. Mohammad H. Al Thani Hamad R. Al Mohannadi Sh. Faisal S. Al Thani Sh. Hamad J. M. Al Thani Sh. Soud K. Al-Thani 

• • • Auditors:

KPMG 

Equity Profile

Stock Market:

Qatar Exchange

Official Sector:

Industrial

Market Cap Size:

Large Cap

Gulfbase Sector:

Utilities

Paidup capital:

QAR 1,100,000,000

Par value per share:

QAR 10.00

Outstanding Shares ('000):

110,000

From the above table, the board of directors is well spelt out hence making the management of the company efficient. The board is medium size hence easier to manage. On the other hand, the equity capital clearly shows that the company is a large cap company due to its enormous capital base. From the table, its market capitalization is higher than most of the small cap companies operating in Qatar. Investors need to realize that investing in Qatar Electricity and Water Company is a good investment since it is more liquid compared to micro-cap companies. The value per share is expected to rise as the company (QEWS) continues to expand its supply of both water and electricity across Qatar and the Middle East. The fact that it supplies neighboring states makes it a safer and relatively riskier investment in its stocks.

Historical performance

Revenues

From the financial charts of the company (QEWS), the revenue of the state has seen an upward trend due to the increase in supply subsidiaries across Qatar. However, it is clear that in the year 20011 the company attained the highest level of revenues and in the subsequent years the revenue stabilized to around 3 billion per every financial year. This has been attributed to the many customers who are now connected to either water or electricity. The high revenues of 2011 were due to a large number of subscriptions to water and electricity by the residents of Qatar.

Net profit

There have been minimal fluctuations in the net profit of the company for the last five years. The financial of the company, however, shows a slight upward trend in the increase of the net profits. The increase has been attributed to cutting down on costs. However, there is a slight drop in the net profit in 2015 compared to 2014 due to the investments being made by the company.

Debts

From the financials. The long term and short term debts are constant and show an effort to try and reduce their amounts of bonds which could be a risk to the overall performance of the company.

Price performance

According to the stock exchange figures, show how volatile the prices of the company (QEWS) have been for the past five years in comparison to other companies in the same sector.

The prices of the company have had a slight continuous upward increase in its stock price indicating that the company has been doing well financially. The lowest price attained was QEWS 88 in 2010 while the highest was QEWS 225 in 2015. The lowest price recently recorded was QEWS 180 in January 2016. At this period, most stock prices had fallen due to the many factors that affect stock prices across the globe. Sin then the company has struggled to uplift its international prices in the stock market and has significantly improved.

The stock prices of the company (QEWS) have been affected by many factors being led by the change in oil prices which has affected the economy of the Middle East. Since Qatar is a nation that is reliant on oil, the drop in prices affected the prices of the stock markets for almost all companies in Qatar.

The above graph shows the decline in oil revenue from Qatar due to the plummeting oil prices which have led to a decrease in stock prices at the beginning of the year 2016 (Gulf base, 2016).

Future plans

The company (QEWS) expects to expand its central plant into other subsidiaries so as to increase the power that the company generates. Its goals are to meet the target goal of the amount of power that Qatar and its neighbors need ad also to lower the cost of power. By reducing the cost of power, it means that most people will be able to access it from their homes. As of 2015, the company had completed ten subsidiary power stations while others were as a result of partnerships. In the year 2016, the company intends to up its maintenance to ensure that all the power plants are running at full potential to produce the desired megawatts. Also, the company wants to reduce the reliance of oil generates BY investing into nuclear-generated power because, in the next 50 years, Qatar will have exhausted its oil reserves.

Swot analysis

Strength

Government owns 55%

The debt ratio is low

Has diversified its assets into many subsidiaries

Has a strong capital base

Performs well in the stock markets

It is the largest power and water supplier in the Middle East

Opportunity

Increasing demand for electricity and water as Qatar continue to grow

The reducing oil deposits in Qatar thus low reliance on oil-generated power

Supply of power and water to neighboring states

Have opportunities for more expansions

Weakness

Decline in revenues in 2015

Increasing short-term debts

Financial ratios are at average

Threats

Increase in competition from other electricity generating companies

Impact of oil reducing prices on the economy of Qatar

Financial ratios

They are used to access the financial strength of the enterprise and how it is performing. Through financial ratios, we can be able to tell how the performance of the company is doing in comparison with the stock exchange rates and other companies. The ratios have been analyzed in the attached excel sheet

Profitability ratios

Net profit margin:

The company has a ratio of 46.17% which is relatively lower than the industry margins of 55.40%. This I an indication that the corporation is not able to outperform the industry margins. The margins are far apart indicating that the company has a lot to do. It also shows that the company is not able to convert his great portion of the revenue into profits. The company could be incurring extra expenses which cut down on the profits.

Debt equity ratio

The ratio shows that the company is managing its debts properly and it is trying to minimize the amounts of long-term debts that it is taking to finance its projects. The debt ratio stands at 135.03 which is lower that than the industry ratio of 162.04. This is attributed to the excellent performance of the management team in cutting down on debts.

Financial strength

Leverage

The borrowing percentage of the company (QEWS) stands at 199.51 which is lower that the industry standards of 162.04. However, the table shows that the equity ratios are increasing over the years which is confident about the performance of the company. Also. It is clear that the company is showing progress in reducing the amount of short term and long term debts incurred by the company. It has led to the relatively low leverage ratio.

Liquid Assets/Total Assets (%)

The company (QEWS) has achieved a percentage of 42 which is lower than the current industry standards of 52.95. This is a clear indication that the company has a small portion of its assets in liquidated form. It makes it safer for the company to trade in the financial markets as well as lucrative company for investors to invest their money.