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Executive Summary Assignment Background: In this assignment, I take the role of an investor looking to invest an amount of USD 50,000 in the capital of a public limited company. To wisely invest, one needs to do a thorough comparative study of the annual reports, stock market performance, news, strategies, vision of the companies, etc to reach a conclusion. I have taken up two companies in the financial sector – namely, Amlak Finance PJSC and Tamweel PJSC for this study.
Currently, I am working in Dubai in the IT sales sector and both these companies are my customers and they are heavily investing in IT security. This is the reason for my special interest in investigating these companies. Both Amlak and Tamweel are leading financial organizations in the UAE, especially prominent in property finance. There is a lot of competition between these companies and also they are both listed in the stock market. Another reason for my interest in investing in these firms is that the Dubai real estate market is currently booming.
People have started to invest heavily in the properties sector of Dubai and there is more demand than supply. “Property prices in Dubai look set to rise between 5% and 10% next year, according to a new report, as delays in housing projects means pent up demand remains unfulfilled. Prices will peak in the second half of 2008” Methodology: I have studied the annual reports of both Amlak Finance and Tamweel extensively for the past 2 years – (2007 & 2006). I understand both these companies are showing signs of positive growth.
I have relied on ratio analysis to calculate and understand the numbers, at the same time I have looked at the vision and mission of these companies, the leadership and management initiatives for the future to come to a conclusion. From my study, I have eventually found that both Amlak Finance and Tamweel are running in profit but have their own advantages and disadvantages, I have decided to split my investment of USD 50,000 amongst both these companies as I feel that this would reduce my risk at the same time, maximize my return on investment.
I see that as of 2007, Tamweel is more promising than Amlak. However, the market price of Amlak’s shares is cheaper. Consequently, I have decided to invest USD 20,100 in Amlak Finance and USD 29,100 in Tamweel. Approach: I have justified my decision on the basis on the following: 1. Signs of future growth as obtained through ratio analysis. 2. Company performance and growth rate till date. 3. The profitability of the company year on year (Net profit or loss) 4. The creditor’s and the debtor’s position. 5. The ratio of current assets to that of the liabilities 6.
The earnings per share 7. Weather the company is running on loans from banks or whether it is working on it’s own capital. 8. Vision and strategy of the management. 9. Current growth of the property market in Dubai. 10. Future growth plans for the property market in Dubai. 11. Company acquisitions and growth strategies… etc to name a few. Table of Contents 1. Executive Summary1 2. Analysis of the financial posture and annual reports4 3. Ratio Analysis11 4. Analysis of tabulated results and other observations14 5. Summary / Conclusion15 6. References & Bibliography16 Introduction:
As an investor, I have obtained the annual reports of both Amlak Finance and Tamweel. They are publically available on the Internet. I would like to give a brief on the Annual reports of both these firms. 2. Analysis of the financial posture and annual reports ?Amlak Finance Amlak Finance started it’s operations in 2003 and it has had a consistent track record of growth and expansion. I still remember that when I came to Dubai in 2005, they were a small organization with about 70 employees and they had only one office. They have been my customers for information security since then.
I have seen them grow over the last three years and now they have three offices in Dubai itself. Their staff strength has also increased to 400 employees. All these indicate a positive growth of the organization. With reference to the annual report (reference cited), please find below some screenshots that indicate the balance sheet trends, key ratios, assets and liabilities of Amlak Finance. These charts are from the annual report published by Amlak finance available from the following link. Figure 1: Balance Sheet Trends and Key Ratios:1 Figure 2: Income Statement1
Figure 3: Assets1 Figure 4: Equities and Liabilities1 In the year 2007, we see that the there has been a significant growth in Amlak however, at the same time; there has also been an increase in the liabilities as well. From Figure 3, we see an 87. 5% increase in the assets of the firm. Interestingly, Figure 4 shows that the liabilities are also as high as the assets (an increase of 87. 5%). “In the year 2008, Amlak aims to achieve a growth of 70%. Amlak’s 2007 revenue was posted at AED 706 million, up 85% against 2006, with the company’s primary line of business – i. e. property finance contributing 65% of the total revenue. Meanwhile, the EPS saw an increase of 122%. There was also an overall increase of 99% in the company’s overall volume of business. ” In short, the company is showing positive signs of growth – both in terms of the size and number of employees and in terms of the gross turn over. It’s shares are performing well, and the overall market feedback is good. Amlak has ambitious plans for expansion. It has entered into a joint venture in Saudi Arabia with Al Baraka Banking Group, Saudi Investment group Bank and Aseer group. They have also entered in Egypt.
In 2008, Amlak plans to open operations in Jordan, Qatar and Bahrain. They have also started to restructure their internal operations and to re-engineering of management thus improving focus of each department. They have also signed an MOU with International Finance Corporation (IFC). These are all positive signs. ?Tamweel PJSC Tamweel was established in 2004 and like Amlak it has also shown significant signs of positive growth. Tamweel is also our customer when it comes to Information Security and in the UAE market Tamweel is the chief competitor to Amlak Finance when it comes to property finance.
This is one of the reasons for my interest in comparing the performance of Amlak finance and Tamweel. The third company that has recently entered the race is Dubai First, however, it has just started up. There are no other firms in the same league as Amlak and Tamweel. The annual report of Tamweel is also publically available on the internet. Please find below some screenshots and charts that indicate the balance sheet trends, key ratios, assets and liabilities of Tamweel. Figure 5: Financial highlights: Tamweel Figure 6:
Tamweel has consistently shown signs of positive growth year on year. The net profit of Tamweel in the year 2007 was AED 451 million whereas in 2006 it was AED 153 million, we see that there has been an increase of 195% in net profit. This has also been mentioned by the chairman of Tamweel – Sheikh Khaled Bin Zayed Bin Saqr Al Nehayan in the Annual report 2007 of Tamweel. We also see an increase of 125. 5% in the EPS (Earnings per share). The EPS for Tamweel was AED 0. 2 in 2006 and in 2007, it rose to AED 0. 451 – This is significantly higher than Amlak.
The public ownership of Tamweel is 55%. The screenshot below shows the balance sheet and the cash flow statement of Tamweel for the years 2006 and 2007. Figure 7: We see that there is an increase of approx 161% in the assets of the firm (From 3. 26 Billion to 8. 51 Billion AED). The development of the company is evident as the staff strength of Tamweel increased from 130 employees to 250 employees (Approx 92% growth) during the 2006 – 2007 period. At the same time, there has been a substantial 3 fold increase of approx 348% in the liabilities and equities of the company.
The shares of Tamweel are performing well in the stock market and also the overall market feedback about the company is positive. Other achievements of Tamweel include winning several awards such as “Best Islamic Home Finance Product” – from Banker Middle East and being listed amongst the “50 most admired companies” in the Gulf by Arabian Business magazine. “Tamweel believes in focusing on the skill development of it’s employees and staff. They invest heavily on training and development of their employees. They also focus much on IT and development of processes such as credit risk management system to enhance their performance.
Unlike Amlak, Tamweel does not have operations outside the UAE currently. However, year 2008 is seen as the year to start expansion to other gulf countries. They also plan to achieve Emiratisation in excess of 30% by 2009. Tamweel also aims to focus on brand building activities and achieve further growth by focusing on bringing out new products, exceptional customer service and unique promotions. ” 3. Ratio Analysis Based on the annual reports obtained, I have used ratio analysis to get more visibility and to invest wisely.
Presenting information in ratio form is more meaningful than expressing it in absolute terms especially when it comes to decision making like deciding how much & where to invest. Ratio analysis helps us understand and analyze the financial statements of companies. “Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company’s financial statements. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition, its operations and attractiveness as an investment. In short, financial ratios throw light upon the financial analysis and control. Balance sheet ratios indicate the financial position of the company and the ratios related to income statement throws light upon the financial performance of the company. Amlak Finance: EPS * P/E = Market Price of Share Earnings Per Share (EPS) = Net Income (PAT)/ No. of Outstanding Shares Here Net income is the income available to equity share holders. This is nothing but (Profit after tax – profit given to preferential share holders) Price Earning Ratio (P/E multiple) = Market price of Share / EPS Weighted average number of shares in 2007 = 1,500,000,000
Weighted average number of Shares in 2006 = 1,500,000,000 Net Income(Profit after Tax) for 2007 = AED 3,01,212,000 Net Income(Profit after Tax) for 2006 = AED 1,29,423,000 EPS in 2007 = (301,212,000 / 1,500,000,000) = AED 0. 200808 = AED 0. 2 Approx EPS in 2006 = (129,423,000 / 1,500,000,000) = AED 0. 086282 = AED 0. 09 Approx This is a positive sign. From the annual report, we see that the value of each share was AED 1 in both 2006 and 2007. The market price for share was not mentioned as it fluctuates from time to time. “However from the Internet we understand that: ? p/e ratio for 2006 = 52. 9 p/e ratio for 2007 = 22. 9” Hence we can calculate the market price of share = EPS * P/E multiple For 2006, the Market price = 0. 09*52. 9 = AED 4. 76 For 2007, The Market Price = 0. 2*22. 9 = AED 4. 58 We know that the higher the EPS, the higher is the profitability of the company. For existing share holders higher the p/e ratio is preferable, however, for those planning to invest, a lower p/e ratio is preferable as we can purchase more shares. In short, these figures indicate that Amlak is a good prospect for investment. On page 40 of the annual report, we see that the proposed dividend per share is AED 0. 0 Dividend pay-out ratio = DPS / EPS = 0. 10/0. 2 = 0. 5 (for 2007) Dividend yield = DPS/Market Price of Share = 0. 1 / 4. 58 = 0. 0218 =; 2. 18% (for 2007) We know that the higher the Dividend Yield and the Dividend Pay out ratio, the more preferable it is for the investor. From Figure 1, we know that the return on assets is 4. 17% in 2007 and it saw an increase from 2. 72% in 2006. This is a positive sign. The net profit margin is given to be 42. 89% for 2007 up from 34. 33% in 2006 We know that ROA = Net Profit Margin * Average Asset Turnover ? Average Asset Turnover for 2007= 4. 7/42. 89 = 0. 097 ?Average Asset Turnover for 2006 = 2. 72/34. 33 = 0. 079 We know that the larger the average asset turnover, the better it is so this is a positive sign. Efficiency Ratio = operating expense / net revenue. GP Margin Ratio = Gross Profit / Net Sales (Net sales = Total Sales – Excise Duty) NP Margin Ratio = Net Profit / Net Sales It is given to be 20. 55% in 2007 as against 22. 82% in 2006. In short, it indicates Amlak to be profitable. Tamweel PJSC: On sheet 25 of Tamweel’s annual report 2007 , we see that Weighted average number of shares in 2007 = 1,000,000,000
Weighted average number of Shares in 2006 = 769,452,055 Net Income(Profit net of director’s remuneration) for 2007 = AED 449,187,000 Net Income(Profit net of director’s remuneration) for 2006 = AED 850,996,000 EPS in 2007 = (449,187,000 / 1,000,000,000) = AED 0. 449 = AED 0. 45 Approx EPS in 2006 = (850,996,000 / 769,452,055) = AED 1. 1 Approx We see that the EPS has come down. This is a negative sign. However, the chairman mentions that the income from IPO Proceedings was 699 Million (Page5 of annual report). If we exclude this, the EPS in 2006 was 0. 2. Hence we see that Tamweel has fared well in 2007.
There is positive growth. “From the Internet we understand that: ?p/e ratio for 2007 = 14. 6 ?p/e ratio for 2006 = 7. 7” Hence we can calculate the market price of share = EPS * P/E multiple For 2007, the Market price = 0. 45*14. 6 = AED 6. 57 For 2006, The Market Price = 0. 20*7. 7 = AED 1. 54 We know that the higher the EPS and p/e ratio, the better it is for the shareholders. The price of the share has also gone up and this means that the other investors are expecting positive growth. However, this also means that as a new investor I have to invest more to purchase the shares of Tamweel as compared to Amlak.
On page 28 under “Proposed Dividends” of the annual report, we see that the proposed dividend per share is AED 0. 218 Dividend pay-out ratio = DPS / EPS = 0. 218/0. 45 = 0. 484 (for 2007) Dividend yield = DPS/Market Price of Share = 0. 218 / 6. 57 = 0. 0331 => 3. 31% (for 2007) Hence Tamweel scores over Amlak (which has a dividend yield of 2. 18%). From graphs on Figure 5 (Screenshot), we know that the return on assets (ROA) was 7. 66% as compared to 6. 30% in 2006. Again Tamweel scores over Amlak. The Return on Equity (ROE) has also increased from 13. 12% in 2006 to 23. 35% in 2007.
The net operating profit has also increased from AED 152,771,000 in 2006 to 451,239,000 in 2007 up by 195. 36% in 2006. This is an excellent sign. 4. Analysis of tabulated results and other observations Given below is a comparison chart of the performance of Amlak and Tamweel. “Amlak Finance 2006 2007 change EPS 0. 09 0. 20 131% PE ratio 52. 9 22. 9 PBV 3. 9 3. 2 -18% Return on Assets (ROA) 2. 6% 4. 1% 59% Return on Equity (ROE) 7. 4% 13. 9% 89% Profit Margin 33. 4% 42. 3% 27% Tamweel
EPS 0. 85 0. 45 -47% PE 7. 7 14. 6 PBV 3. 6 3. 2 -11% Return on Assets (ROA) 26. 1% 5. 3% -80% Return on Equity (ROE) 46. 8% 22. 1% -53% Profit Margin 546. 0% 144. 9% -73% ” The ratios indicate that both the companies are doing well and in comparison, Tamweel is performing better than Amlak as the PE ratio is lower, the EPS, Return on Assets, Return on Equity and overall profitability and profit margin is higher. The profit margin of Tamweel in 2006 is distorted because of the release of IPO.
However, we must also keep in mind that the cost of shares of Tamweel is higher than that of Amlak (Tamweel is at AED 6. 5 and Amlak is at AED 4. 58) this is in favor of Amlak. The number of share of Amlak is constant at 1. 5 billion, whereas the number of shares of Tamweel is at 1 billion but increasing. It is in the news that Tamweel is expecting to double it’s profits this year. 5. Summary / Conclusion It is wise; I believe to invest in both these companies as each one of them is performing well. It is safer to split the investment as there is lesser risk involved.
However, I would invest more in Tamweel than with Amlak as the share performance potential of Tamweel is more. I would purchase USD 29,900 worth of shares of Tamweel (@ AED 6. 5/share) and USD 20,100 worth of shares of Amlak (@ AED 5. 0/share). This would imply that I would get 16,928 share of Tamweel and 14,793 shares of Amlak. In this manner I can have the maximum number of shares (31,721) split across two profit making companies with minimal risk and with maximum chance of ROI. 6. References & Bibliography 1. Westley, D. (2007) ‘Property prices to peak in 2008’ ArabianBusiness. om, 13 September 2008 [Online] Available from: ; http://www. arabianbusiness. com/492734? ln=en; Accessed [13th September 2008] 2. 2 Amlak Finance PJSC (2008) ‘Annual Report 2007’ : Amlak Finance PJSC, (3rd March 2008) [Online] ;http://www. amlakfinance. com/html/images/stories/2007. pdf; [Accessed 2nd September 2008] 3. 3 Amlak Finance PJSC (2008) ‘Annual Report 2007’ : Amlak Finance PJSC, (3rd March 2008) [Online] ;http://www. amlakfinance. com/html/images/stories/2007. pdf; [Accessed 2nd September 2008] page 9 4. 4 Tamweel (2008) ‘Annual Report 2007’ : Tamweel, (no date) [Online] ;http://www. amweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf ; [Accessed 4th September 2008] page 14 5. 5 Tamweel (2008) ‘Annual Report 2007’ : Tamweel, (no date) [Online] ;http://www. tamweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf ; [Accessed 4th September 2008] page 17 6. 6 Khaled Bin Zayed, Sheikh (2008) ‘Chairman’s Message’ Annual Report 2007 : Tamweel, (no date) [Online] <http://www. tamweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf > [Accessed 5th September 2008] page 03 7. 7 Tamweel (2008) ‘Annual Report 2007’ : Tamweel, (20th January 2008) [Online] <http://www. amweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf > [Accessed 4th September 2008] page 2,3 8. 8 Anon (2008) ‘Revealed: Gulf’s most admired companies’: Arabian Business. com 15th April 2007 [Online] Available from: ;http://www. arabianbusiness. com/most-admired-companies ; [Accessed 10th September 2008] 9. 9 Tamweel (2008) ‘Annual Report 2007’ : Tamweel, (20th January 2008) [Online] ;http://www. tamweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf ; [Accessed 6th September 2008] page 17 10. 10 Anon (no date) ‘Financial Ratio Analysis’: Anon, [online] Available from: ; http://www. inpipe. com/equity/finratan. htm ; [Accessed 10th September 2008] 11. 11 Anon (2008) ‘What is Price Earning Ratio (P/E)? How to Calculate? ‘: Investment life 10th August 2008 [Online] Available from ; http://www. tuneprofit. com/stock-basic/what-is-price-earning-ratio-pe-how-to-calculate/ ; [Accessed 12th September 2008] 12. 12 Sharewadi (2008) ‘Amlak Vs Tamweel’: Dubai Abu Dhabi UAE stocks and shares discussion forum , (5th February 2008) [Online] ; http://www. dubaisharetalk. com/viewtopic. php? t=6404 ; [Accessed 8th September 2008] 13. 3 Tamweel (2008) ‘Annual Report 2007’ : Tamweel, (no date) [Online] ;http://www. tamweel. ae/Documents%20Files/Downloads/AnnualReport2007. pdf ; [Accessed 4th September 2008] page 25 14. 14 Sharewadi (2008) ‘Amlak Vs Tamweel’: Dubai Abu Dhabi UAE stocks and shares discussion forum , (5th February 2008) [Online] ; http://www. dubaisharetalk. com/viewtopic. php? t=6404 ; [Accessed 8th September 2008] 15. 15 Sharewadi (2008) ‘Amlak Vs Tamweel’: Dubai Abu Dhabi UAE stocks and shares discussion forum , (5th February 2008) [Online] ; http://www. dubaisharetalk. com/viewtopic. php? t=6404 ; [Accessed 8th