SABIC is one of the largest companies operating in Saudi Arabia. The company is involved in manufacturing chemicals and other industrial materials for different industries. The company has a strong financial position, and it has achieved high growth in the last five years. In this brief analysis report, the company’s financial performance is evaluated based on the key financial indicators from the last five years. Furthermore, the analysis also uses the Discounted Cash Flow Model to determine the intrinsic value of the company’s stock. The report concludes with a recommendation to buy or sell shares of the company.
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The table provided below summarizes information regarding the financial performance of SABIC in the last five years.
|Cash from Operating Activities||42,144,461||49,992,628||60,681,268||53,894,522||53,777,489|
Table 1: Key Financial Indicators.
It could be noted that the company’s assets increased from 2011 to 2014. However, the total assets declined by 3.4% due to the sale of an old plant, equipment, and machinery. The company also managed to reduce its liabilities in the last five years. The analysis indicates that the company reduced its liabilities through the repayment of its long-term borrowing. The company’s equity also showed high growth in the last five years.
The analysis of income statement indicates that the company’s revenues remained between SR188 million and SR190 million during 2011-2014. However, the company experienced a major decline in its revenues by 21% in 2015. The reason was the slowdown in the industrial activity and reduction in the demand for industrial materials. The gross profit, operating profit, and net profit also declined in 2015 due to the slowdown in the company’s business. However, the company was able to maintain a strong cash position from its operating activities. It was a positive sign for the shareholders as the company is unlikely to face major financial problems in the next period.
Discounted Cash Flow Model
|2011||2012||2013||2014||2015||2016 (f)||2017 (f)||2018 (f)||Terminal Value|
|Less: Capital Expenditure||-10,641,972||-10,986,605||-11,902,646||-15,161,409||-18,278,320|
|Less: Changes in NWC||-16,537,025||1,379,353||-2,433,887||624,381||15,304,550|
|Sum of Present Value||574,523,772|
|Outstanding No. of Shares||3,000,000|
|Intrinsic Value per Share||191.51|
Table 2: DCFF of SABIC.
|Cost of Equity|
|Ke = Rf + B*(Rm-Rf)|
|Growth Rate (ROE x RR)||5.00%|
|No of Outstanding Shares||3,000,000|
|Share Price (30 Oct 2016)||85.5|
|Long Term + Short Term Borrowing||10,510,401|
It could be indicated that the intrinsic value calculated by using Discounted Cash Flow Model is greater than the current share price of SR 85.5. It implies that the company’s share price is likely to increase in the coming months. Moreover, the financial analysis indicated that the company has a strong financial position and it is unlikely to face any major challenges in the future. Therefore, it is recommended to buy SABIC shares.