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Fin Mgmt

In: Business and Management

Submitted By Hareem101
Words 3108
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“FINANCIAL MANAGEMENT”
FINAL PROJECT: INVESTMENT PORTFOLIO ANALYSIS

SUBMITTED ON: 21.9.2014
SUBMITTED TO: Muhammed Ali Saeed
SUBMITTED BY: Hira Saeed Amber Mirza Omer Khalid Yumna Fayyaz Maham Siddique Sidra Fawad Marium Zaman

COMPANY

INFORMATION

FAUJI FERTILIZER COMPANY (FFC):
Fauji Fertilizer Company Limited (FFC) is the largest chemical fertilizer producer of Pakistan with biggest market share in the country. It was established by the Fauji Fertilizer which holds a controlling interest. The company was listed on the Karachi Stock Exchange in 1991. Based on the exemplary dividends to the shareholders and other criteria of Karachi Stock Exchange, FFC has consistently remained in the list of top 25 best performing companies of Pakistan consecutively for 14 years since 1994. As a result of excellent performance over the years, the company's ranking in the Karachi Stock Exchange list of 25 companies improved from fifth position in 1995 to second in 1996, it was awarded the first position in 1997 and again second prize in 1998. As of 2007, the company is at the 5th position.

DGK CEMENT (DGKC):
DGKhan Cement Company Limited (DGKCC) was established under the management control of State Cement Corporation of Pakistan Limited (SCCP) in 1978 as private limited company. DGKCC started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on dry process technology. Nishat acquired DGKCC in 1992 under the privatization initiative of the government. After privatization the company was listed on Stock Exchanges in September 1992. The Company is principally engaged in the manufacturing and sale of Cement.

GLAXOSMITHKLINE (GLAXO):
GlaxoSmithKline Pakistan is one of the leading pharmaceutical companies in Pakistan and is the world's second largest company high-ranking stands for Employee Cares. GS Pakistan equation was formed when Beecham, Glaxo Welcome and Smith Kline, all having a big name in the pharmaceutical market and that were separate entities before, merged in 2002. GSK International is a United Kingdom-based pharmaceutical, biological, and healthcare company. It is the world's second largest pharmaceutical company and a research-based company with a wide portfolio of pharmaceutical products

HONDA ATLAS CARS (HCAR):
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan. The company was incorporated on November 04, 1992 and joint venture agreement was signed on August 05, 1993. The first car rolled off the assembly line on May 26, 1994. The company is listed in Karachi, Lahore and Islamabad Stock Exchanges.

UNITED BANK LIMITED (UBL):
United Bank Limited was incorporated in Pakistan with the registered office in Karachi, and the principal office situated in Islamabad. UBL has assets of over Rs.1 trillion and a solid track record of over fifty years - in addition, the bank operates 1281 branches all over Pakistan including 22 Islamic banking branches, and 1 branch in Karachi export processing zone and 18 branches outside Pakistan. The banks ordinary shares are listed on all three stock exchanges in Pakistan and its global Depositary Receipts (GDRs) are on the list of the UK Listing Authority and the London Stock Exchange Professional Securities Market. These GDRs are also eligible for trading on the international Order Book System of the London Stock Exchange.

PAKISTAN PETROLEUM LIMITED (PPL):
Pakistan Petroleum Limited (Reporting name: PPL or PP) is a multinational, global competitive and one of the largest state-owned megacorporation of Pakistan. It was incorporated on June 5, 1950, when it inherited the assets and liabilities of the Burmah Oil Company Ltd. which initially holds 70% of the share with the rest mostly held by the government of Pakistan (GoP). As of June 2011, GoP held 70.66% of the shares. The company is headquartered in Karachi. It operates major oil and gas fields, including the Sui gas field, has non-operating interests in other fields, and has an interest in an exploration portfolio onshore and offshore. The company is now planning international exploration in partnership mode.

NISHAT MILLS LIMITED (NML):
Nishat Mills Limited is the flagship company of Nishat Group. It was established in 1951. It is one of the most modern, largest vertically integrated textile companies in Pakistan. Nishat Mills Limited has 198,120 spindles, 655 Toyota air jet looms. The Company also has the most modern textile dyeing and processing units, 2 stitching units for home textile, one stitching unit for garments and Power Generation facilities with a capacity of 89 MW. The Company’s total export for the year 2011 was Rs. 36.015 billion (US$ 416 million). Due to the application of prudent management policies, consolidation of operations, a strong balance sheet and an effective marketing strategy, the growth trend is expected to continue in the years to come. The Company's production facilities comprise of spinning, weaving, processing, stitching and power generation.

PAKISTAN REFINERY (PAKRI):
Pakistan Refinery Limited was incorporated in Pakistan as a public limited company in May 1960 and is quoted on the Karachi and Lahore Stock Exchanges. The Refinery is situated on the coastal belt of Karachi, Pakistan. PRL is a hydro skimming refinery designed to process various imported and local crude oil to meet the strategic and domestic fuel requirements of the country.
Pakistan Refinery Limited since inception has been the principal manufacturer and supplier of petroleum products to the domestic market and Pakistan defense forces. It continues to serve the energy needs of the country with professional excellence and high degree of commitment.

ENGRO CORPORATION (ENGRO):
Engro Corporation is a public company based in Pakistan. The company has stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. Engro underwent an employee led buyout in 1992. Engro Corporation Limited is one of Pakistan’s largest conglomerates with businesses ranging from fertilizers to power generation. Currently Engro Corporation’s portfolio consists of diversified businesses which include chemical fertilizers, PVC resin, bulk liquid chemical terminal, foods, power generation and commodity trade. The company also co-owns Sindh Engro Coal Mining Company.

HUB POWER COMPANY (HUBCO):
The Hub Power Company is a large, private-sector power company and its 1,200 MW plant is located 60 km from Karachi in Hub. The electricity at HUBCO is generated by four 323 megawatt oil-fired units that are supplied by a 78 km long pipeline from Pakistan State Oil (HUBCO, 1999b). The oil is burned in 4 large boilers to produce steam to generate electricity. HUBCO received a loan agreement of US$ 425 million from the Government of Pakistan via the National Development Finance Corporation in 1994. It is considered one of the most successful private-public partnership projects in Pakistan.

FINANCIAL

RATIOS

FFC: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 14.24 | 71.40 | 8.67 | 20.8 | 14.24 | 2011 | 8.46 | 99.17 | 17.68 | 10.9 | 16.51 | 2012 | 7.14 | 80.96 | 16.40 | 13.87 | 12.29 | 2013 | 7.07 | 80.5 | 15.83 | 15.85 | 13.77 | 2014 | 7.18 | 77.30 | 16.20 | 1.15 | 13.37 |

FFC has been able to reduce its debt over the years, which means that there are more chances of investors recovering their investment. The P/E ratio has been reducing over time as well which is a healthy sign along with increasing EPS that shows an increase in profitability. However, the ROE has been fluctuating up and down but remains above 70%, which means that the shareholders are able to profit their investment in the company's success. On the other hand, the dividend yield has peaked to estimated Rs. 17 but over the three years has reduced. Today, the investors will receive Rs. 13.37 on every rupee they invest.

DGKC: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 51.3 | 1.0 | 0.70 | 59.73 | 0 | 2011 | 42.7 | 1.4 | 0.45 | 51.5 | 0 | 2012 | 6.7 | 9.5 | 9.38 | 43.7 | 0 | 2013 | 6.1 | 9.4 | 12.56 | 4.5 | 3.3 | 2014 | 6.87 | 10.84 | 12 | 0.13 | 3.0 |

The debt owed by DGKC is almost paid off which is very good for investors as there are high chances of recovering the investment. The ROE however has been very low over the years but relatively better for 2014, but still not very impressive. The lowest the P/E ratio, the attractive the investment is and it seems pretty low as compared to the past years. If the EPS rises, it will make the stock more attractive as it shows more profitability. The major drawback is the dividend yield as an investor receives only Rs. 3 for every rupee invested, which is not very attractive.

GLAXO: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 20.0 | 9.8 | 4.4 | 0.1 | 4.5 | 2011 | 15.3 | 10.3 | 4.3 | 0.1 | 6.0 | 2012 | 16.0 | 11.6 | 4.6 | 0 | 5.5 | 2013 | 37.1 | 9.4 | 3.7 | 0 | 2.6 | 2014 | 39.37 | 11.69 | 4.84 | 0 | 2.98 |

The P/E ratio is very high making the investment unattractive as the earning on every share purchased is very low along with the dividend being earned per share Rs. 3. The profitability of the company is not very high either (Rs. 4.84 per share) because the higher the EPS is, the more money your shares will be of worth. ROE is just 12% as well which shows that the investment made is not being utilized very well due to which there is not a higher return either. The only positivity in this company is that zilch debt is owed.

HCAR: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | (2.7) | (35.5) | (6.0) | 0.8 | 0 | 2011 | (4.8) | (18.3) | (2.1) | 0.5 | 0 | 2012 | (3.0) | (37.9) | (3.7) | 0.2 | 0 | 2013 | 17.1 | 19.6 | 1.7 | 0 | 17.6 | 2014 | 7.3 | (28) | (2.65) | 0.07 | 0.27 |

The P/E ratio is low, which is very good as the investors will be earning more on every share purchased but the dividend being earned is not quite impressive as it is just Rs. 0.27 per share purchased. Before, the company did not owe any debt, but this year there is a debt to be paid too but it’s not something to be worried about as the debt-to-equity is very low. The ROE and EPS represent a negative value, which is a major discouragement for the potential investors.

UBL: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 7.48 | 19.5 | 9.12 | N/A | 8.6 | 2011 | 4.14 | 19.8 | 12.66 | N/A | 11.0 | 2012 | 5.72 | 23.5 | 14.61 | N/A | 16.2 | 2013 | 8.72 | 23.8 | 15.21 | N/A | 12.0 | 2014 | 11.8 | 19.66 | 16.43 | N/A | 9.47 |

The debt owed by UBL is unavailable due to which we are unable to determine the likeliness of investors recovering their investment. The P/E ratio has also been increasing over time which means that investors are now receiving a relatively lower return than before but the constant increase in EPS shows an increase in value of stocks overtime. If investment being made is utilized properly, there will be an increase in ROE, dividend yield, and drop in P/E that will make the company attractive for investors.

PPL: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 7.86 | 28 | 23.4 | 0 | 4.89 | 2011 | 7.87 | 3 | 26.31 | 0 | 5.80 | 2012 | 6.05 | 34 | 31.13 | 0 | 6.11 | 2013 | 8.29 | 29 | 25.53 | 0 | 4.96 | 2014 | 8.99 | - | 12.92 | 0 | 4.74 |

There is no expected ROE for PPL this year as it has been very unpredictable over the past years. The dividend yield has been dropping over the period which can be very discouraging along with the highly fluctuating EPS and a rise in P/E over the past two years. The only positivity about PPL is the zero debt owed which ensures return on investment made.

NML: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 4.11 | 11.50 | 10.5 | 9.50 | 5.80 | 2011 | 3.65 | 14.51 | 13.78 | 8.09 | 6.56 | 2012 | 4.74 | 9.65 | 10.04 | 9.07 | 7.36 | 2013 | 5.67 | 12.10 | 16.63 | 5.33 | 4.25 | 2014 | 5.08 | 8.3 | 23.1 | 0.41 | 4.0 |

The constant increase in EPS is a very good sign for investors as it shows that with every passing year, the worth of shares is increasing (the shares bought today will be sold at a higher value tomorrow). The P/E ratio has been fluctuating over the period, which means that the earning on every share purchased is now dropping. A constant drop in D/E ratio shows that the company is successfully paying off all of its debt and within the coast of next one year or two; it will be a debt free company. The major drawbacks here are the fluctuations in ROE (the investment is not being utilized) and drop in dividend yield.

PAKRI: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 11.5 | 8.7 | 1.75 | 43.1 | 14.9 | 2011 | 6.7 | 14.8 | 3 | 44.6 | 14.9 | 2012 | 6.5 | 14.5 | 3.11 | 43.6 | 14.9 | 2013 | 6.3 | 14.9 | 3.23 | 43.7 | 14.9 | 2014 | 6.0 | 15.3 | 3.35 | 46.6 | 14.9 |

The P/E ratio is dropping over time which means that the earning on every share purchased is now increasing which the dividend being earned has been stationary at the value of Rs. 15 roughly. But due to the rising debt-to-equity and a very low EPS, the worth of the shares being purchased is not very high. But, over the years the ROE is increasing which means that the investment is being utilized.

HUBC: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 6.66 | 18.70 | 4.80 | 1.23 | 15.64 | 2011 | 8.0 | 18.27 | 4.69 | 0.84 | 14.67 | 2012 | 5.92 | 27.17 | 7.08 | 1.76 | 14.32 | 2013 | 7.60 | 29.61 | 8.11 | (0.86) | 12.98 | 2014 | 9.83 | 25.45 | 6.87 | 1.64 | 6.30 |

The P/E ratio has risen over the past five year’s period which shows that the earning on the shares being bought is reducing with a drop in EPS which means that the shares are losing their value over time. The debt hasn’t reduced a lot over the year and the dividend yield has been dropping a little over the years but has dropped to half its value this year. And the drop in ROE shows that the efficiency in utilization of the investment has also reduced.

ENGRO: YEAR | P/E | ROE | EPS | D/E | DIV YIELD | 2010 | 11.22 | 24 | 13.28 | 3.07 | 0.03 | 2011 | 4.57 | 24 | 15.77 | 2.49 | 0.03 | 2012 | 35.28 | 3 | 2.61 | 2.33 | - | 2013 | 9.89 | 19 | 18.01 | 1.66 | - | 2014 | 10.98 | - | 15.99 | - | 1.55 |

The P/E ratio for Engro Corp has been very unstable as it keeps rising and dropping. But the present ratio is roughly 11%, it is relatively lower but needs to decrease further in comparison to other companies. The ROE and D/E ratio is unavailable for the present year and the record for recent year has been very unstable making it very unpredictable. The EPS is lower than the previous year but moderate enough in comparison to other companies. Lastly, the dividend being earned per share is just Rs. 1.55 which is not very encouraging. This stock is very risky.

BETA

ANALYSIS

BETA SUMMARY: | 2010 | 2011 | 2012 | 2013 | 2014 | FFC | 0.8 | 1.17 | 0.56 | 0.81 | 0.598 | DGKC | 1.18 | 0.559 | 1.59 | 1.26 | 1.75 | GLAXO | 0.595 | 0.64 | 1.20 | 0.77 | 1.22 | HCAR | 0.9 | 1.0 | 1.10 | 1.07 | 1.62 | UBL | 0.90 | 0.70 | 1.0 | 1.22 | 1.17 | PPL | 1.1 | 1.0 | 1.06 | 0.83 | 0.825 | NML | 0.94 | 0.7 | 0.8 | 1.37 | 1.59 | PAKRI | 0 | 1.0 | 0.74 | 0.66 | 1.3 | HUBC | 0.70 | 0.85 | 1.03 | 0.87 | 0.65 | ENGRO | 1.07 | 1.29 | 1.0 | 1.42 | 1.43 |

FFC: 0.8 + 1.17 + 0.56 + 0.81 + 0.598 = 0.7872, defensive stock 5

DGKC: 1.18 + 0.559 + 1.59 + 1.26 + 1.75 = 1.26, aggressive stock 5

GLAXO: 0.595 + 0.64 + 1.20 + 0.77 + 1.22 = 0.885, defensive stock 5

HCAR: 0.9 + 1.0 + 1.10 + 1.07 + 1.62 = 1.138, aggressive stock 5

UBL: 0.90 + 0.70 + 1.0 + 1.22 + 1.17 = 0.998, defensive stock 5 PPL: 1.1 + 1.0 + 1.6 + 0.83 + 0.825 = 1.071, aggressive stock 5

NML: 0.94 + 0.7 + 0.8 + 1.37 + 1.59 = 1.08, aggressive stock 5

PAKRI: 0 + 1 + 0.74 + 0.66 + 1.3 = 0.74, defensive stock 5

HUBC: 0.70 + 1.85 + 1.03 + 0.87 + 0.65 = 1.02, aggressive stock 5

ENGRO: 1.07 + 1.29 + 1 + 1.42 + 1.43 = 1.242, aggressive stock 5

PORTFOLIO

ANALYSIS

BETA AVERAGE OF 10 COMPANIES: | BETA | FFC | 0.7872 | DGKC | 1.26 | GLAXO | 0.885 | HCAR | 1.138 | UBL | 0.998 | PPL | 1.071 | NML | 1.08 | PAKRI | 0.74 | HUBC | 1.02 | ENGRO | 1.242 |

PORTFOLIO AVG:
= 0.7872 + 1.26 + 0.885 + 1.138 + 0.998 + 1.071 + 1.08 + 0.74 + 1.02 + 1.242 10

= 10.2212 10

= 1.02 ( i.e. greater than 1)

The average beta of the entire portfolio turns out to be a rough estimation of 1.02. Since the beta is higher than 1, it shows that the portfolio is aggressive meaning that the stocks are highly influenced by the day-to-day market news and the health of economy. An aggressive portfolio means that there is higher return on the investment but it is associated with higher risk. Because our portfolio is aggressive, it will need an active management since the buy-and-hold strategy won’t be enough. Due to its volatility, it will need more frequent adjustments to tailor with the changing market conditions.

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