About the paper
The paper is commissioned to analyze the industrial position of Qatar based Aamal Company using both qualitative and quantitative parameters. While the qualitative assessment will be based on SWOT analysis, quantitative assessment of the company will be performed using the tool of ratio analysis as part of which, we will be performing the analysis using raw financial figures for the current year and the comparing the outcome with industrial and index benchmark . Additionally, we will also perform the stock valuation of the company to access its suitability for the investment purpose.
The report will finally be culminated with a brief synopsis of the overall trends and aspects witnessed through the SWOT analysis, ratio analysis and stock valuation.
About the company
Founded in the year 2001, Aamal Company is a conglomerate company based in Qatar. Rated as one of the fastest growing diversified companies in Qatar, the company’s operations comprise of 27 business units with profile, including real estate development, industrial manufacturing, managed services, medical equipment, pharmaceutical and retail. Officially, the company operates with four business segments:
Property
Trading and Distribution
Industrial Manufacturing
Managed Services
The company is listed on Qatar Exchange and is currently priced at QAR 13.13.
SWOT Analysis
SWOT Analysis caters the needs to analyze the qualitative aspects of the company within the purview of the present day business environment and the projected one. Below we have discussed the SWOT analysis of Aamal Company:
Strength(S)
Strong profitability
Vintage presence and positive brand equity
Economies of scale and barriers to entry
Operating in business friendly and a growth environment of Qatar
Weaknesses(W)
Increasing Leverage
Increasing Competitiveness in the industry
Low investment in research and development activities
Low dividend payout
Opportunities(O)
Tapping global markets
Increasing consumer spending will be a boon for the retail segment
Threats(T)
Rising cost of raw material
Possible increase in the interest rates
Low cost competition from existing rivals
Offshore companies with the high capital base citing Qatar as a favorable market
Management
Chairman: Sheikh Faisal Bin Qassim Al Thani
Vice Chairman: Sheikh Mohamed Bin Faisal Al Than
Managing Director: Mr. Tarek M. El Sayed
CFO: Mohammad Ramahi
Equity Capital
Paidup Capital: 6,300,000,000
Shares outstanding: 630,000,000
Major Shareholders:
Al Faisal Holding is the major shareholder of the company holding 60% of the Company shares.
Future Projects
Industrial Manufacturing- Partnership between Aamal and C&C Lightway
Energy Projects- Through its subsidiary, Johnson Control
Ratio Analysis
This is the core section of this report as part of which we will be accessing the financial standing of Aamal Company using the tool of financial ratios. Important to note, to attain comprehensiveness in our analysis, we have performed the cross section analysis by comparing the ratios with QE Index and Industrial Sector.
a) Liquidity Ratios
These ratios help us in accessing the working capital position of the company and how efficient it is in honoring its short-term obligations. Two of the liquidity ratios that we used to access the liquidity position of Aamal company are, current ratio and quick ratio.
Following the calculation for the current ratio of the company, we found that the multiple(1.18) is higher than the market index(1.12) but lower than that of the industry sector (1.58). This indicates that while the company is having better liquidity than the market index on an average basis, however, when compared with the industry index, it is running comparatively with lower liquidity position. Additionally, the time series analysis reveals that until 2014, the company witnessed notable improvement in the current ratio multiple ,which peaked at 1.48 during 2014. However, during 2015, the current ratio decreased to 1.18.
Next, we calculated the quick ratio, which happens to be a stringent measure of liquidity. Following the calculation we found that the quick ratio of the company is 1.20 which is higher than the QE index(0.31) but lower than the industry benchmark(2.0).
Therefore, the results confirm that while the company is having better liquidity position than the market index, but is running on comparatively lower liquidity than the average industry peers.
b) Profitability Ratios
These are the most sough after ratios by the stakeholder community as it indicates how well and profitably the company is using its resources. To access the profitability position of the company, we calculated the net profit margin and return on equity (ROE) multiple of the company:
-Net Profit Margin: Net Profit/ Revenue
Calculation of the net profit margin of the company reveals that until 2014, the net profit margin of the company was consistently improving before it faced the decline in 2015 and settled at 20.86%. However, even at this profit level, the company is performing relatively well than the industry peers with the net profit margin of 14.79%. However, the profitability position of the company was lower than the QE index with the net margin multiple of 28.36%.
-Return on Assets
Our calculation for the ROA multiple of the company confirms that over the years, the ROA multiple of the company has remained fairly constant within the range of 6%-7%, while the multiple was calculated to 6.37% during 2015. However, the cross section analysis reveals that while the company is generating a better ROA than the market index (2.66%), however, relative to the ROA of the industry benchmark (6.51%), it is relatively generating lower ROA.
-Return on Equity:Net Income/Total Equity
Shareholders of the company are highly concerned with the ROE multiple as it indicates the amount of return generated by the company on the equity capital. Following the calculation we found that ROE of the company is 8.28%, which is lower than that of the QE index(12.13%) and industry average(10.08%). This indicates that the company is generating a lower return than its industry peers and the market index.
c)Financial Strength
These ratios provide information about the capital structure composition of the company and the level of risk included in the capital structure of the company. Below we have discussed two leverage ratios accessing the financial strength of the company:
-Leverage%:
The cross section analysis reveals that the company is trading at a relatively lower leverage percentage(22.45%) compared to industry peers(53.4%) and the market index(304.36%), thus indicating a lower risk level embedded in the capital structure. However, the time series analysis reveals that while until 2014, the company consistently lowered its leverage position, during 2015, it again opted for a higher leverage structure with the leverage % surging to 22.45% compared to 18.5% during 2014.
-Liquid Assets to Total Assets%
Following the calculation we found that over the years, the proportion of liquid assets to the total assets was consistently improving, however, during 2015, the multiple declined significantly from 9.3 in 24 to in 2015. Additionally, the proportionate amount of liquid assets held by the company was significantly lower than the industry peer average( 12.9%) and also than the market index(14.29%)
Ratio Summary:
Stock Valuation:
This is the last section of this report where we will calculate the intrinsic value of the stock using the residual income method and PE based valuation.
a)Residual Income Model
As we can see from the above calculations, on the basis of residual income method, the stock is currently undervalued and has a possibility to gain significant capital appreciation.
b) PE based valuation
This is a relative stock valuation method and is also the most widely used amongst the analyst community to access the intrinsic value of the stock. Below we have calculated the intrinsic value of the company’s stock using PE based value:
= PEIndustry* EPS
=22.1* 0.96
= QAR 21.21
Following the PE based valuation, we can see that stock is undervalued and has a potential to generate capital appreciation.
Conclusion
Following the qualitative and quantitative assessment of the company through SWOT analysis, ratio analysis and stock valuation, we found that Aamal company is presently in a commendable position with its conglomerate business structure turning all the odds in the company’s favor. Huge product portfolio, focus on high quality and supportive business environment of Qatar are being transformed into higher profitability figures, which allows the company to dominate the industry. However, increasing leverage and lower proportion of the liquid assets to the total assets are a source of concern.
On the other hand, both the valuation methods confirms undervaluation of the stock, thus making it a perfect candidate to be included in the portfolio.
References
Aamal Company. (2015). Annual Report 2015. Qatar: Aamal Company.
Aamal Company. (2014). Annual Report 2014. Qatar: Aamal Company.
Aamal Company. (2013). Annual Report 2013. Qatar: Aamal Company.
Aamal Company. (2012). Annual Report 2012. Qatar: Aamal Company.
AAMAL COMPANY Q.S.C. (n.d.). Retrieved May 22, 2016, from http://www.alfaisalholding.com/divisions/aamal-company-qsc.aspx
SWOT Analysis- Aamal Company. (n.d.). Retrieved May 22, 2016, from http://swot.advisorgate.com/swot-a/184-swot-analysis-aamal.html
