SABIC Company’s Analysis and Recommendations

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Table of Contents

Introduction
Financial Analysis
Discounted Cash Flow Model
Recommendation

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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SABIC Company’s Analysis and Recommendations

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