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SABIC Company’s Analysis and Recommendations Research Paper


Introduction

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.

Financial Analysis

The table provided below summarizes information regarding the financial performance of SABIC in the last five years.

2011 2012 2013 2014 2015
Total Assets 332,783,648 337,437,888 339,070,569 340,041,079 328,219,154
Total Liabilities 143,578,014 141,586,563 132,414,486 129,815,352 118,361,968
Total Equity 189,205,634 145,415,015 156,271,417 210,225,727 209,857,186
Revenues 189,898,253 189,025,547 189,031,500 188,988,645 148,085,741
Gross Profit 62,130,360 53,393,331 55,344,363 51,477,157 43,027,760
Operating Profit 48,838,371 41,025,537 42,584,691 37,731,269 28,519,321
Net Profit 29,241,750 24,780,262 25,278,382 23,347,114 18,768,690
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
Net Profit 29,241,750 24,780,262 25,278,382 23,347,114 18,768,690
Add: Depreciation 11,815,334 13,729,760 14,283,312 14,761,578 15,712,692
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
FCF 13,878,087 28,902,770 25,225,161 23,571,664 31,507,612 33,082,157 34,735,386 36,471,234 660328478.5
Discount Factor 0.90480917 0.818679635 0.740748841 0.740748841
Present Value 29933038.59 28437153.51 27016024.37 489137555.3
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.

Working

WACC
Weight Interest % Cost
Debt 10,510,401 0.033372334 1,509,014 14.36% 0.004791379
Minority Interest 47,933,137 0.152195969 8,645,118 18.04% 0.027449739
Equity 256,500,000 0.814431697 8.96% 0.072964302
Total 314,943,538 WACC 10.52%
Cost of Equity
Ke = Rf + B*(Rm-Rf)
Rf 2.00%
Beta 1.13
Rm 8.96%
Ke 9.86%
30-Oct-16 5,936.30
01-Oct-16 5,448.20
488.10
Rm 8.96%
2011 2012 2013 2014 2015 Average
ROE 0.155 0.170 0.162 0.111 0.089 0.137
Retention Rate 0.595 0.398 0.496 0.208 0.121 0.364
Growth Rate (ROE x RR) 5.00%

Other Information

No of Outstanding Shares 3,000,000
Share Price (30 Oct 2016) 85.5
Long Term + Short Term Borrowing 10,510,401
2011 2012 2013 2014 2015
Dividend Paid 11,831,275 14,914,371 12,733,741 18,502,401 16,503,778

Recommendation

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.

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IvyPanda. (2020, November 5). SABIC Company's Analysis and Recommendations. Retrieved from https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/

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"SABIC Company's Analysis and Recommendations." IvyPanda, 5 Nov. 2020, ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

1. IvyPanda. "SABIC Company's Analysis and Recommendations." November 5, 2020. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.


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IvyPanda. "SABIC Company's Analysis and Recommendations." November 5, 2020. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

References

IvyPanda. 2020. "SABIC Company's Analysis and Recommendations." November 5, 2020. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

References

IvyPanda. (2020) 'SABIC Company's Analysis and Recommendations'. 5 November.

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