Company analysis of the Qatari Ezdan real estate company - Research Paper Example

Company Analysis Lecturer: Ezdan real E Company Macroeconomic Analysis Ezdan Real E Company takes immense credit and market advantage through favorable macroeconomic parameters. Ezdan Company has immense presence in Qatar, thus benefiting the infrastructural industry in many positive aspects. Being a Sharia compliant company, investments are locally and internationally recognized. The company has 2,652,497 shares, with over 50 years in operations reflecting long-term goals transformations in infrastructural development.

Ezdan real Estate Company has able to increase their revenues from QAR 302million to QAR377million. The company has been able to increase the profits from QAR 121million in 2010 to QAR345 million in 2011. This shows that the company is increasing its market size as well as growing its asset book. The average growth in the last five years is 24% which is the highest compared to other players in the industry. The first time it paid out its dividends was in 2011 with a rate of 0.2 being a higher dividend payout ratio of 153.58. The market price variance per share was small in 2011 with 30.

8 being the highest and 21.3 as the lowest. Industry Analysis Compared to other competing or complementary firms/companies in the same industry, Ezdan real Estate Company performs well with greater market capitalization as shown in the table below. The daily price variation was zero. Table 1: Highly performing Ezdan real Estate Company in the Industry (Gulfbase.com, 2012) Company Last Price (Local Currencies) Price Change (%) 1 Day Market Cap (US$ Mil) Ezdan Real Estate Co. - ERES 18.30 0.00 13,324 Emaar Properties Co.

- EMAAR 3.71 1.64 6,151 Jabal Omar Development Co. - JABALOMAR 18.95 0.00 4,708 Barwa Real Estate Co. - BRES 27.55 0.00 2,943 Al Mabanee Co. - MABANEE 1,200.00 0.00 2,710 Dar Alarkan Real Estate Development Co. - DARALARKAN 8.35 0.60 2,419 Company Analysis Ezdan real Estate Company has a market capitalization of estimated US$13,324 million and 2.6 million outstanding shares according to Gulfbase.com (2012e). Moreover, the current P/E ratio is 1.27 depicting excellent performance in which case the share fetch favorable prices for shareholder dividends.

The tables 2 and 3 give a range of variables that point to present performance of Ezdan real Estate Company. The cost of production is low, meaning that the direct indirect costs are lower owing to low taxation. It raises operating activities level of cash flows. Table 22: Ezdan real Estate Company Analysis Table 1 (Gulfbase.com, 2012) As of 31/12/2011 YTY Change (%) 5- Year Growth (%) Revenues (QAR) 377,048 24.47 0.81 Net Profit (QAR) 345,433 184.72 -33.66 Current Assets (QAR) 1,532,679 75.35 129.

22 Current Liabilities (QAR) 1,202,927 -26.78 90.57 Total Assets (QAR) 32,886,905 3.02 48.09 Owners Equity (QAR) 27,739,644 1.23 43.44 Cash Flow From Operating Activities (QAR) 422,822 44.63 0.0 Table 3: Ezdan real Estate Company Analysis Table 2 (Gulfbase.com, 2012f) 2011 2010 2009 2008 2007 Current Ratio 1.27 0.53 0.39 3.98 0.86 Quick Ratio 1.05 0.43 0.24 3.34 0.56 Liquid Assets/Total Assets (%) 3.71 2.12 0.4 2.38 0.65 Equity/Assets (%) 84.35 85.84 90.77 93.73 98.81 Leverage (%) 18.56 16.5 10.17 6.69 1.

2 Gross Profit Margin (%) 132.61 98.27 84.5 87.56 88.53 Net Profit Margin (%) 91.62 40.05 1,792.98 349.99 234.56 Return On Assets (%) 1.05 0.38 28.89 19.61 10.81 Financial Ratios The financial ratios employed in Ezdan real Estate Company analysis comprise liquidity (current ratio-1.27), Leverage ratio (18.56%), and profitability ratio (equity to assets, 84.35%). The formulas of every ratio applied in this analysis are similar as those used in the Barwa Company. Tables 2 and 3 give an outline of the financial ratios applied in working out the analysis.

In addition, Table 3 gives current financial ratios of the company with regard real estate industry performance. The financial ratios of the company are compared in a stretch of five years. Table 3: Financial Ratios of Ezdan real Estate Company in the last five years (Gulfbase.com, 2012f) As of 31/12/2011 YTY Change (%) 5- Year Average (%) EPS (QAR) 0.13 184.9 5.19 Dividend per share (QAR) 0.2 N/A 0.2 Payout Ratio (%) 153.58 N/A 3.86 Net Profit Margin (%) 91.62 51.56 638.88 Return on Assets (%) 1.05 0.67 12.

33 Return on Equity (%) 1.25 N/A 13.95 Equity/Assets (%) 84.35 -1.49 88.36 Liquid Assets/Total Assets (%) 3.71 1.59 0 Current Ratio 1.27 139.49 0.77 Quick Ratio 1.05 144.34 0.61 Leverage (%) 18.56 2.06 13.17 Given the ratios above, Ezdan real Estate Company is on track with regard to profitability, liquidity, and leverage. It was not able to pay dividends in the in 2010 but made it in 2011 since the earnings per share was high in 2010 but was retained to be paid in 2011. This allowed the company to finance its activities in 2011 from retained earnings of 2010.

In spite of the company’s inability to pay dividends in the preceding years, it is undoubtedly making immense profits as seen in the profitability ratios like return on assets and Net Profit Margin Share Prices (5-Year Data) Per Share Data (QAR) Table 4: Ezdan real Estate Company Shares Prices (5 years) (Gulfbase.com, 2012f) 2011 2010 2009 2008 2007 Book Value 10.46 10.33 10.29 2.45 1.93 EPS 0.13 0.05 3.27 0.51 0.21 The growth averages in dividends in the last five years was 0.0834 (Dividend Gross Yield).

According to Table 5, the Ezdan real Estate Company EPS (Earnings per Share) is presently at QR 0.13. Taking the assumption that the EPS will grow by 10% in the next 10 years, it thus indicates that 10 years starting now, Ezdan real Estate Company share will fetch EPS of QR 1.3. Given the PE Ratio 80.46, the stock price forecasted after 10years is QR 1045.98, which is arrived at from the formula of the P/E ratio = Book value/Earnings Per Share. Capital Asset Pricing Model The Capital Asset Pricing Model (CAPM) is applied in stock price calculations for the firm by use of the following formula: Returns Required = Risk free security returns + beta (market portfolio returns – return on risk free rate).

Basically written as; Applying the formula above in the first two cases, the expected return = 10.46%. The values of EPS and stocks are then determined using the formulas as in the preceding two cases. Stock Price determination: From the present EPS (Earnings Per Share) of 0.13, and supposition that this will raise at a stable rate of 12% per year over the next 10 years tied with a dividend growth of 3.58%; , it is forecasted that the share value of Ezdan will be QR 90.32, which is far much higher than the PE of 80.46. Where beta=0.

6 Given a payout ratio of 153.58%, the Total Dividends = Total EPS * 153.58% The company's EPS (Earnings Per Share) is currently QR 0.13 and I assume it will increase in next 10 years to be QR1.3 The current PE Ratio 80.46 so the forecasted stock price after 10 year is 800.463. Capital Asset Pricing Model Required return =return on risk free security +Beta (return on the market portfolio - risk free rate return). Calculate Stock Price: The Ezdan real estate EPS (Earnings Per Share) is currently QR0.

13, EPS will grow at a steady rate of 12% per year over the next 10 years. Table 6: Financial forecasts from 2011 to 2022 Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Forecasted EPS 0.13 0.146 0.163 0.183 0.204 0.229 0.257 0.287 0.322 0.361 0.404 0.452 The company has a dividend payout average of 158.38.0%. Earnings Per Share subsequent to the fifth Year = 0.13 X (1.2 ^10) = QR 0.805 Forecasting for 10 years = 0.805 * 0.12*100= QR 9.66 The company's average PE ratio has been approximately 9.

66 Total Dividends = Total EPS * 153.58% Total EPS= 3.138 Total Dividends = 3.138 * 153.58% =4.832 =4.832+ 9.66= 9.848 Net Present Value = Future Value/Expected (ROI) = 9.848? (1.2 ^ 10) = 2.34 Since the calculations were based on the intrinsic value of 2.34 is greater than the present share price of QR0.13, it is probable that the Ezdan Real Estate Company can trade in stock now since it has immense potential of increasing in the future. References Agrawal, A. a. (2005). Corporate Governance and Accounting Scandals.

Journal of Law and Economics , 48(2), 371–406. Jain, T. R., & Ohri, V. K. (2006). Introductory Microeconomics and Macroeconomics. Hamburg: FK Publications.