Almarai financial analysis

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Table of Contents Executive Summary 4 Introduction 5 Background 5 Comparable Companies Analysis (CCA) 6 Step I. Select the Universe of Comparable Companies 6 Step II. Locate the Necessary Financial Information 6 Step III. Spread Key Statistics, Ratios, and Trading Multiples 6 Key financial Data 6 Sales 6 Gross Profit 7 EBITDA 8 EBIT 8 Net Income 9 Profitability Ratios 10 Gross Profit Margin 10 EBITDA Margin 10 EBIT Margin 11 Profit Margin 12 Interest Coverage Ratio 12 Inventory Turnover Ratio 13 Fixed Asset Turnover Ratio 14 Total Asset Turnover 15 Liquidity Ratios: 15 Cash Ratio 15 Current ratio 17 Return on Invested Capital (ROIC) 18 Return on Equity (ROE) 18 Return on Assets (ROA) 19 Dividend Yield 19 Leverage Ratios 20 NET DEBT TO EBITDA 21 DEBT-to-CAPITALIZATION 22 Debt Ratio 23 Step 4: Benchmark the Comparable Companies 23 Step 5: Determine Valuation 24 P/E Ratio 24 EV/EBITDA Ratio 25 Enterprise Value Multiples 26 26 Trading Multiple 26 NADEC’s Implied Valuation 26 Discounted Cash Flow Analysis 27 Step I. Study the Target and Determine Key Performance Drivers 27 Knowing the company’s Strengths 27 Freshness and taste at the heart of our strategy 27 Aiming for best structure that conform to global standards 27 Generating growth abroad 28 Supporting employee development 28 Step II. Calculate the Free cash flow 28 Step III. Calculate Weighted Average Cost of Capital 30 Step IV. Calculate the terminal value 30 Step V. Calculate Present Value and Determine Valuation 30 Present Value: 30 Terminal Value: 31 Determine Valuation: 31 Sensitivity Analysis 31 Conclusion: 32 References 32

Executive Summary
Our research studies a particular public company of the Kingdom of Saudi Arabia’s NADEC valuation based on two methods; A comparative Comparable Analysis and a Discounted Cash Flow Analysis. A comparable company analysis (CCA) is a process used for the purpose of the valuation of a company using other businesses of similar size, within the same industry. It tests the theory that under the assumption that similar companies are bound to have similar valuation. On the other hand, a discounted cash flow (DCF) is a valuation method used to study how appealing an investment is. It uses the Future free cash flow projections and discounts them to get the present value, which is used to study the perspective of an investment. If the value of the DCF is higher than the current cost of investment, the investment is appealing.

During our research and studies, we have found that using the comparable company analysis has provided a SELL signal, while the DCF analysis has provided a BUY signal.

Introduction
The main purpose behind this paper is to determine whether the selected companies are comparable to the selected target company. We used the comparable companies analysis (CCA) in order to evaluate the target company and find out who its direct competitors/peers are. When evaluating a company, using one methodology is not enough. Therefore, we decided to use both the comparable companies analysis (CCA) as well as the discounted cashflow analysis (DCF) in order to establish valuation parameters for the target company and determine its relative positioning among its peers. The comparable companies analysis will be used to provide a market benchmark in order to establish a valuation of the target company at a given point of time. The discounted cashflow analysis will be used to find the target company’s intrinsic value and check on the prevailing market valuation of the target company.

Background
Established in 1181, the National Agricultural Development Company (NADEC) was initiated with an aim to provide consumers with healthy and tasteful foodstuffs. The company was initiated with a startup equity of SAR 400 million. It is one of the chief agricultural and food-processing firms in the Middle East and North Africa (MENA) region. NADEC is the primary and major agricultural shareholding business in Saudi Arabia. Its production includes a wide variability of crops which includes wheat, fodder, maize, potatoes, etc. Around 20% of the firm is owned by the Saudi Arabian Government, while the remaining 80% are publicly traded on the Saudi Stock Exchange. It is one of the very few and largest vertically integrated dairy businesses in the world. The firm delivers its foodstuffs through two main businesses- NADEC Foods for consumer goods and NADEC Agriculture for agricultural produce.