Security Analysis And Portfolio Management

By Author: Henry Ford
Total Articles: 189
Comment this article

One of the major roles of a finance manager of a company is investment analysis and portfolio management. This is considered a primary and a key role in an organization because the choice of investment opportunities and their management determines a lot the shareholder wealth hence success of a company (Bohm, 2009). Investment analysis and portfolio management entails choosing from alternatives the best securities or projects to invest in order to maximize shareholder wealth.
A finance manager has to choose good securities based on risk and return characteristics of the securities. The role of investment analysis and portfolio management extends to making decisions on the stocks to hold on, when to sell and the stocks to be sold. A finance manager may also decide to combine several securities in order to reduce the risks of the investment. In deciding which securities to combine, the finance manager has to carry out correlation analysis of the various stocks in order to know which securities to invest in (Reilly, Leahigh & Brown, 1996).
Investment analysis and portfolio management process is done in steps ...
... which are gathering of information, analysis of the information, making a choice, investing in the securities chosen and then managing the investment. In this project, we will analyze the stocks of three companies listed in the Saudi Stock Exchange and make recommendations on the best stocks to invest in and also recommend on the target price for reselling. In making these recommendations and decisions, we will use critical ratios for the companies, the companies SWOT analysis and technical forecasts (Rangantham, 2006).

Methodology
In this paper, the three companies which are the Savola Group, SADAFCO and Almarai will be analyzed and their individual strengths, Weaknesses, Opportunities and Threats (SWOT) determined. They will be presented in form of table summaries and small bits of explanations. Autocorrelation of the stocks of the three companies will also be discussed and a discussion on the best stock to invest will follow.
Analysis of the companies
A.SAVOLA Group
His company is listed in the Saudi Stock Exchange and is a well diversified conglomerate well structures investments. The company is one of the biggest in Middle East and Central Africa with a capital base of SR 5 Billion. It is has grown very fast from the initial capital of SR 40 Million to the current capital base and has increased its portfolio. The wide portfolio of the company includes oils, sugar, pasta, retail, real estate and franchising. The company currently claims 62% edible oils market and 68% of Sugar markets in the area of operation (The Savola Group website).
The group has quite a number of retail outlets which help in supplies and contact with customers. The group has four main sectors which are the foods sector, retail sector, real estate sector and the plastics sector. In addition to the four sectors, there is also a franchising sector for international fashion brands. The company was ranked number 12 in the top 100 companies in Saudi Arabia.
Savola Group also has interest in other companies in other sectors and other regions. The company has invested in Almarai Dairy Company (30%), Herfy Foods Company (47%), and Jordanian Tameer Company (5%) among others. The company is well vested in the area of corporate social responsibility, with a substantial amount of investments in social projects (The Savola Group website).
The group considers one of its strengths to be the company’s clear vision which is to give customers value for their money and to offer a good working environment for workers. The other strength is the company’s marketing strategy which is creating a superior package for the customers and a good understanding of the changes in the market demands. Savola group thus seeks to constantly carry out research and development in order to come up with products that give customers offer advantage.
Another strength to Savola group according o the company is its corporate ethics and values. Savola Group remains committed to satisfying the expectations of all the various stakeholders who include the government, the customers, society, employees and shareholders among others. Savola group also strains to ensure that there is less conflict between the various groups of stakeholders. The corporate governance of the company is also exemplary.
Savola Group also banks on synergy of its investments for success. It has chosen the food industry to be the basic investment and used its competitive advantage to outdo the competitors. Savola Group is very careful in its choice of investments and seeks to ensure that the investment is well diversified. Lastly, but not least, Savola Group believes in Allah and the group is always sincere which according to them, is one of their major strengths.
The opportunities to the Savola Group are the increasing globalization awareness, e-commerce and growth of consumer good market in the region. Through globalization, the company will be able to operate in different countries without major business restrictions hence will be able to increase its profits.

Table 1: Summary of SWOT analysis of Savola Group.
Strengths
1. Clear vision
2. Customer focus strategy
3. Corporate ethics and value
4. Synergy of investments Weaknesses
1. Centralized organization structure
Opportunities
1. E- commerce
2. Growing consumer good markets Threats
1. Financial crisis
2. Economic depression

B. SADAFCO
SADAFCO stands for Saudia Dairy & Foodstuff Company were established in 1976 with the focus of food industry. SADAFCO started by producing dairy products like ice cream but later expanded to include other food substances like tomato sauce and snacks. The company has acquired some foreign companies and has a lot of stakeholders. SADAFCO recently underwent a restructuring process and the result was a better company focused more on the consumer (SADAFCO Website).
The strengths of SADAFCO Company are the employees and strategy. The company has trustworthy and reliable employees who can perform under all circumstances and with minimum supervision. The employees are also dedicated to their work and loyal to the company hence high productivity. The company uses the customer focus strategy which enables it to deliver according to the expectations of the customers (SADAFCO Website).

Table 2: Summary of SWOT analysis of SADAFCO
Strengths
1. Dedicated employees
2. Focus strategy Weaknesses
1. High leverage
Opportunities
1. Developed market
2. Good business environment Threats
1. Competition from other firms

C. Almarai
Almarai Company was developed from an effort by the prince sultan to make use of the available market to develop dairy farming. The company has grown tremendously since 1976 from a traditional dairy farming to a state of the art dairy processing company. The organization structure of Almarai was centralized but it was changed in 1990s to a decentralized structure. Through the decentralization, Almarai pursued and achieved the strategy of low cost producer in the region of operation. The main products offered by Almarai are dairy products, fruit juices and bakery products (The Almarai Company).
The company has highly invested in its employees and technical know-how, with up to date equipment and super-processing plants. Because of the up to date technology, the company is able to produce high quality goods to its customers. Almarai Company has ownership stakes in other companies such as Western bakeries, Hadco and PepsiCo among others. This is all in an effort to diversify the risks the company faces. Almarai has invested in these other subsidiaries in order to widen its products range and also to increase it geographical coverage.
The strengths for Almarai Company are up to date infrastructure which is made up of super processing plants and bakeries. Almarai also has a good selling and distribution channels which ensure that the customers are served well. The company uses the cost leadership strategy which has made it to claim a big market share among the poor people.
Among the opportunities open to the Almarai Company are the undeveloped markets for consumer goods in Middle East, forecasted increase in food consumption and e-commerce (The Almarai Company). Almarai could therefore enhance its competitiveness by focusing and developing the underdeveloped consumer good markets in Middle East and capitalizing on the food consumption in the region. E-commerce would make the operations of the company cheaper and more convenient. Through e-commerce, Almarai will also be able to reach more customers.

The author is associated with

The author is senior writer at https://www.allacademicanswers.com