Investment Highlights:
The share price of Al Rajhi Banking and Investment Corporation remained its growth over the past year, reflecting strong financial performance of the company. Lower forward P/E ratio of the corporation, when compared to the trailing one implies the potential adjustment of the share price, leading to strong “hold” recommendation by the analysts. However, the long-term performance of the company will contribute to its growth and development, putting an upward pressure on the price. The final recommendation of the report is purchase of the company’s stock after moderate adjustment in the short-term.
Al Rajhi Banking and Investment Corporation is an international corporation that is operating in the Kingdom of Saudi Arabia, Kuwait, Malaysia, and Jordan. The main four operating segments include Investment Services and Brokerage, Treasury, Retail, and Corporate(Yahoo Finance). The corporation offers a wide variety of accounts for tis owners, including auto, home finances, import documents, letters of credit, personal credit and many others (Al Rajhi Banking and Investment Corporation). Equity report of the corporation offers the most crucial information regarding its past operations, current condition, as well as future development potential. Equity report compares the company against the other main participants in the relevant industry, contributing to the quality of the decision-making process.
The share price of the company remained at a relatively stable level over the past year with a slight decline in October 2016 and further increase to SAR 63.00 in April 2017. The majority of the analysts recommend a strong hold for the company’s share, implying only moderate level of the growth potential, along with the risks regarding the possible decline. Given the fact that the company’s Forward Price to Equity (P/E) Ratio stands at 10.96 versus the Trailing P/E Ratio of 12.6, the forecasts suggest undervalued level of the company’s share price.
Financial data presented suggests relatively strong performance of the corporation.
The Al Rajhi Banking and Investment Corporation maintained relatively high Total Debt ratio of 0.85-0.86. The ratio stood at 0.85 during the past 2 years, including 2015 and 2016. High reliance of the corporation on debt versus equity may suggest high level of leverage, leading to the potential financial risks.
The company’s asset management indicators have indicated decline in 2015 with slight recovery on 2016. Receivables turnover has reached a 3-year low of 0.45 in 2015 versus 0.67 in 2016. Similarly, the average collection period rose to the 3-year high of 813.91 in 2015, declining to 546.56 in 2016. The return on equity has grown to 0.16 in 2016 versus 0.15 in 2015.
The profitability of the company has mirrored its asset management tendencies. Namely, the profit margin has reached 62 percent in 2016, increasing from 60 percent in 2015. The return on assets (ROA) remained at the level of 2 percent over the past three years. The return on equity (ROE) has reached 16 percent in 2016, increasing from 15 percent in 2015 and 19 percent two years earlier. The profitability of the corporation remained at the strong level, despite the downward pressure, stemming from lower asset management processes.
The company has improved its liquidity with the current and quick ratios reaching the 4-year highs of 25 percent in 2016. The liquidity growth originated from the current assets growing at a faster rate, when compared to current liabilities.
The relative valuation of the company against its peers has shown relatively strong position with the strongest Earnings per Share (EPS) of 7.65 versus 2.60 median of its competitors(Google Finance). Its net profit margin has been higher than the peer median of 52.43 percent. At the same time, its P/E ratio is significantly higher than those of its peers at 8.48. Such high P/E level suggests that the share price of the company is overvalued.
Works Cited
Al Rajhi Banking and Investment Corporation. Investor Relations. 2017. May 1 2017.
Google Finance. Al Rajhi Banking & Investment Corp SJSC. 1 May 2017. 1 May 2017.
Yahoo Finance. Al Rajhi Banking and Investment Corporation (1120.SR). 1 May 2017. 1 May 2017.
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