SAHARA PETROCHEMICAL COMPANY - Research Paper Example

Ticker: ● 2260 Recommendation: ●good stock to invest in Price: ●17.00 Price Target: ●23.60 Mar. Jun. Sept. Dec. Year P/E Ratio 2009A 0 $0.00 0.236053 0.179 2009 80.92 2010A 0.135 0.345 0.235 0.149 2010 21.06 2011A 0 0.714 0.334 0.0114 2011 16.52 2012E 0.00395 0.0675 0.0777 0.0879 2012 11.37 Highlights Earnings per share is a measure of return of capital to the investor. This case, we compute the value for quarterly Earnings/share given the profit for the period and project into a future period.

We approach the period by determining the profit nade for the period and the earnings for that period. This is then used to forcast for the year 2012 using the provided P/E for the 2nd and final quarter. we use linear interpolation to come up with the profit for the period and work back to obtain for the asked quarter Business Description Sahara petrochemicals top organ is the board of directors, constituted of 12 members. Sahara has a CEO who doubles up the the chairman of the board of directors of the Zamil Group.

He directs the company decision policy and serves to protect the interests of the parent company, the Zamil Group. He also sits in the board of the other subsidiary companies. The general manager is the one who runs the company and is Sahara’s managing director and executive president. He oversees the general management of the company and sits on the due to his management involvement. The other board members are ordinary members who serve in the subsidiaries. "SAHARA Petrochemicals" performs contributions and oversees foundation and setting up quite a few limited liability companies in Al Jubail Industrial City with the contribution to Saudi and overseas companies that have the contemporary skills and technologies; to manufacture and sell its chemical and petrochemical goods such as propylene, polypropylene, ethylene and polyethylene (Sahara Petrochemical Company, 2011). . sahara is part of the Al-zamel group empire that ha a direct investment of almost 8% of the company’s share.

The other major investor is the Yamamah Saudi Cement that owns 1% stake in the company. The company has a numer of subsidiary business that help develop it’s product base. This are Al Wahe petroleum, where it has a 75% share ownership (Sahara Petrochemical Company, 2011). Industry Overview and Competitive Positioning Sahara is the mPetrochemicals are compounds made from crude oil and natural gas. These are hydrocarbons made up of carbon and hydrogen atoms. The main sources of these raw materials are oil and gas because if their availability and relative cheap cost as compared to other hydrocarbon sources.

Petrochemicals have had a drastic impact on food in the formulation of synthetics. Petrochemicals have intermediate products and derivatives. The intermediates are produced by the chemically changing primary petrochemicals into sophisticated compounds. Infrastructure and technological factors Level of infrastructure This determines the overheds incurred in transporting raw materials and finished products. availability of well qualified workforce, petrochemicals are sophisticated compound s that required high level of skill.

This is skill is very specific and hard to find. High industrial concentration (Clustering) With industrial clustering, the cost are reduced as infrastructure can be shared Access to dependable and assisting suppliers; Political and legal factors political stability most loil-endowned countries have turbulent political systems and war affects production and investment benevolent environmental legislation towards FDI it is important for there to be incentives for direct investors as the industry requires huge capital investments, not available from producer states.

Among others incentives are tax diminution in host country and international trade harmony Market factor economic stability-reduces the cost of production due to the market confidence and low overheads. level of competition in host market if the competition in the country stiff, the market share is split giving each competitor a smaller market to supply. With the high costs in the industry, the companies will be forced to cut down. the size of host market and demand thereof are also key. Social and cultural factors attitude of the local community towards the firm the community perception to what the company is doing is important as it affect the supply factors and labor.

cultural distance the moral issue is key in Saudi and other religious states on synthesis of products. Cost factors Energy, cost of raw materials,Transport alabor contribute to the major costs in petrochemical production and investment. The return on investment is a key measure. Investment Summary The company has has heavy debt financing, profitability on a positive growth curve and positive cashflow. Sahara has opimal staff and this is reflected the groth from the periowhere it was understaffed.

the share’s market confidence has been on the boost and the company shows by issuing rights Valuation The valuation used is using the discounted cashflow process. We determint the cash flow trend, the liabilities, sales growth and resultant profit margins,forecast accounts and ratios and predicta growth pattern for the company. This uses historical records for 4-5 years to observe this trend. Financial Analysis The company’s profitability has improved significantly over the years. The company was on an increase in the first two years before getting into a big slump and posted losses in the next three years.

In 2009, the company posted its first profit in 4 years and since then the profit has been on the increase. Looking at the working capital would help evaluate the return on investment by the shareholders. Performing a cash eps helps to see how capital is utilized in the company. The company portrays positive results for the 3 years running supporting the idea of a turn around in the company financials. Performing a WACC. The weighted cost of capital and investment. The current shareholders are rewarded for their investment through the gains made through leveraging and this causes the steady increase in the company’s asset portfolio.

earnings The earnings per share for 2011 are high apart from the first quarter but it is not appreaciated in the market by investors as it is perceptive negatively, as the P/E show (Sahara Petrochemical Company, 2011). The current ratio is sound at a value of 3 for most the period. However, in the previous years, the value was too high showing the company had excess liquidity. The returns by the company in the 2007 shows a company in low profitability, extreme capital structure and understaffed.. Cash Flow The cashflow analysis shows that the growth in capital is steady for the period and increases with the observed growth in sales for the period under study.

Balance Sheet & Financing The company has capital that are more than the value of tangible assets. This means that the company uses debt finance to increase its capital base and increase the value of its shares. Investment Risks The investment in Sahara is not only sound but rewarding as reflected by the statement of accounts. However the industry is one affected by many factors and risk hedging is important. The crude oil prices sirectly affect the petrochemical industry. The price volatility shown in the company ranges 0 and 40 which means that the nuit price of the raw material is affected.

Works cited Sahara Petrochemical Company (2011). Web. Retrieved from: http://www.saharapcc.com