SABIC Company’s Analysis and Recommendations Research Paper

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Updated: Feb 2nd, 2024

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.

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Financial Analysis

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

20112012201320142015
Total Assets332,783,648337,437,888339,070,569340,041,079328,219,154
Total Liabilities143,578,014141,586,563132,414,486129,815,352118,361,968
Total Equity189,205,634145,415,015156,271,417210,225,727209,857,186
Revenues189,898,253189,025,547189,031,500188,988,645148,085,741
Gross Profit62,130,36053,393,33155,344,36351,477,15743,027,760
Operating Profit48,838,37141,025,53742,584,69137,731,26928,519,321
Net Profit29,241,75024,780,26225,278,38223,347,11418,768,690
Cash from Operating Activities42,144,46149,992,62860,681,26853,894,52253,777,489

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

201120122013201420152016 (f)2017 (f)2018 (f)Terminal Value
Net Profit29,241,75024,780,26225,278,38223,347,11418,768,690
Add: Depreciation11,815,33413,729,76014,283,31214,761,57815,712,692
Less: Capital Expenditure-10,641,972-10,986,605-11,902,646-15,161,409-18,278,320
Less: Changes in NWC-16,537,0251,379,353-2,433,887624,38115,304,550
FCF13,878,08728,902,77025,225,16123,571,66431,507,61233,082,15734,735,38636,471,234660328478.5
Discount Factor0.904809170.8186796350.7407488410.740748841
Present Value29933038.5928437153.5127016024.37489137555.3
Sum of Present Value574,523,772
Outstanding No. of Shares3,000,000
Intrinsic Value per Share191.51

Table 2: DCFF of SABIC.

Working

WACC
WeightInterest%Cost
Debt10,510,4010.0333723341,509,01414.36%0.004791379
Minority Interest47,933,1370.1521959698,645,11818.04%0.027449739
Equity256,500,0000.8144316978.96%0.072964302
Total314,943,538WACC10.52%
Cost of Equity
Ke = Rf + B*(Rm-Rf)
Rf2.00%
Beta1.13
Rm8.96%
Ke9.86%
30-Oct-165,936.30
01-Oct-165,448.20
488.10
Rm8.96%
20112012201320142015Average
ROE0.1550.1700.1620.1110.0890.137
Retention Rate0.5950.3980.4960.2080.1210.364
Growth Rate (ROE x RR)5.00%

Other Information

No of Outstanding Shares3,000,000
Share Price (30 Oct 2016)85.5
Long Term + Short Term Borrowing10,510,401
20112012201320142015
Dividend Paid11,831,27514,914,37112,733,74118,502,40116,503,778

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. (2024, February 2). SABIC Company's Analysis and Recommendations. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/

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"SABIC Company's Analysis and Recommendations." IvyPanda, 2 Feb. 2024, ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

References

IvyPanda. (2024) 'SABIC Company's Analysis and Recommendations'. 2 February.

References

IvyPanda. 2024. "SABIC Company's Analysis and Recommendations." February 2, 2024. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

1. IvyPanda. "SABIC Company's Analysis and Recommendations." February 2, 2024. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.


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IvyPanda. "SABIC Company's Analysis and Recommendations." February 2, 2024. https://ivypanda.com/essays/sabic-companys-analysis-and-recommendations/.

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