Weekly Commentary on the Trading in Kuwaiti Stock Exchange Essay

Commentary on Trading for the Week ending – 27.09.2007

In general the Kuwaiti market showed a marginal declining trend at the end of the week, though the first trading day of the week started with new high levels of the share price index. Although no major events affected the share price movements, the Real Estate sector was the largest loser with a reduction in the index up to 3.63 percent. The reduction was caused by the drop in the share price of Jeezan Holding Company losing 28.09 percent – a major drop.

There was a drop in the price of two other real estate companies – International Investment Projects losing 22.06 percent and International Resorts Company shares dropping by 12.00 percent. Industrial sector with 3.82 percent, Insurance sector with 1.24 percent, and Services sector with 0.33 percent were the three sectors which showed an increase. The share price of Gulf Petroleum Investment rose by 10.11 percent and closed at KD 0.490.

Commentary on Trading for the Week ending 04.10.2007

The Stock market witnessed an active trading during the trading sessions of the whole week, with the market index reaching a new high level of 399.28 points on 03.10. 2007.  Share prices in all the sectors showed an increasing trend. While the insurance sector recorded the highest increase of 2.73 percent in the index, Banking sector followed with 1.46 percent increase. The real estate index went up by 0.91 percent during the week. This week recorded the highest increase in the total index with the largest gain for October with 1.87 percent increase. Shares of International Investment Project, was the highest traded during this week with 163.21 million shares changing hands which is equivalent to 9.28 percent of the total traded volume. The price of the share went up by 5.66 percent and closed ad KD 0.280

On the macroeconomic side, the Kuwaiti Dinar was allowed to depreciate against US Dollar with the biggest one day fall of the year. Another important event is the signing of a protocol stipulating the amendments to the accord for evading double taxation and tax payment evasion between Kuwait and South Korea.

Commentary on Trading for the Week ending 11.10.2007

The market mood was upswing and reached new levels during this week, though there was a drop in the volume of sales as the investors were waiting for the companies to announce their third quarter results. The volume of shares traded showed a decline of 12.87 percent. The sector-wise performance showed a mixed trend. Industrial sector recorded an increase of 2.39 percent, followed by Non-Kuwaiti index increasing by 2.03 percent. Banking sector added 1.95 percent and the Insurance sector performed very poorly with a decline in the index of 1.35 percent. Services sector also lost 0.82 percent. The news on the macroeconomic side was that the inflation rates as of July was announced which stood at 5 percent – an all time high in 12 years period with increase in the housing and transport costs.

Commentary on Trading for the Week ending 18.10.2007

The Kuwaiti stock market after two weeks of upswing showed a marginal decline this week. The Eid holidays affected trading sessions for three days and this has affected the volume traded. Another reason for the decline in the volume of trading by 22.38 percent is that the companies are still to announce the results of third quarter and the investors were cautious. In the performance of the sectors, Industrial sector lost 1.14 percent with the investment sector standing as second loser with a loss of 0.38 percent. The other sectors showed positive performance with Insurance sector adding 1.07 percent and Food sector index rose by 0.82 percent. SHUAA Capital was the top gainer for the week with an increase in the share price of 17.95 percent and the scrip closed at KD 0.460. On the other hand Gulf Horizon Holding Company was the biggest loser with a 13.40 percent loss in the share value.

Commentary on Trading for the Week ending 25.10.2007    

The stock market recorded a lower note during the week, despite of the fact that the volume of the shares traded went up by 71.43 percent and the value increased by 93.52 percent. With 570.15 million shares changing hands services sector accounted for 27.96 percent of the total volume traded. However on the value of shares traded, investment sector accounted for 25.03 percent with service sector closely following at 24.42 percent.

On the sector-wise performance there was decline in the index of five sectors and Industrial sector showed the highest gain with 2.37 percent. The scrip of National Industries Group in the industries sector rose by 5.49 percent at KD 1.920. The insurance sector showed a huge decline with the index losing 1.60 percent. The share price of Gulf Insurance Company went down by 3.57 percent and the price of Kuwait Recommendation-insurance company shares was reduced by 3.64 percent. The price of Gulf Petroleum Investment, one of the companies taken by the project for logging the share price movements increased by 17.78 and closed at KD 0.530.

On the macroeconomic side, “Standard & Poor’s Ratings Services raised its Banking Industry Country Risk Assessment (BICRA) on the State of Kuwait (AA-/Stable/A-1+) to Group 4 from Group 5. This action primarily reflects the improvement in economic risk, factoring in the improved government’s financial strength over the past few years, amid a very supportive economic environment, and its beneficial impact on the creditworthiness of Kuwaiti banks. The improvement in banking industry country risk is a positive element that underpins all credit ratings on banks in Kuwait” (Global Weekly Market Report – Kuwait).

 

Commentary on Trading for the Week ending 01.11.2007

 The market continued to react in a bearish trend with a significant retreat showing the symptoms of correction since February 2007. The trading in the market showed a declining trend with the investors reacting cautiously sensing a correction in the market. This had resulted in a reduction in the volume of shares traded by 7.84 percent and the value by 6.51 percent. The investment sector accounted for 34.33 percent of the volume. The analysis of sector wise performance showed the insurance sector as the only sector with a gain of 0.19 percent, while all the other sectors’ performance showed a negative trend. The services sector is the largest loser with 5.46 percent drop in the index as compared to last week. Industrial index showed a drop of 2.08 percent.

Commentary on Trading for the Week ending 08.11.2007

The downward trend in the stock trading continued during this week also with the index reaching the lowest level since July 23 2007. The volume of shares traded went down by 33.99 percent and the value also dropped by 33.99 percent due to the cautious approach of the investors. All the sectors showed negative trend in the index while Non-Kuwaiti index managed to increase marginally by 0.26 percent. Service sector is the biggest loser with a decline of 4.81 percent. While the Industrial index shed 3.94 percent, the index of real estate sector went down by 3.31 percent.

The Central Bank of Kuwait announced that the money supply in Kuwait grew by 19 percent in September 2007 which is one of the factors for causing inflation in the country.

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Performance of Companies in Different Sectors of Kuwait – Case Study

Introduction

As a part of the finance project, this paper presents an analytical report on the performance of the following companies functioning in different sectors of Kuwaiti economy:

Kuwait Finance House

One of the largest Islamic Banks in the World, headquartered in Kuwait

Activity: Banking services according to Islamic economic principles, including retail banking, consumer financing, leasing and mortgages, project finance, and corporate finance; real estate, contracting and trading

Sector: Banking – Financial Services – Commercial Banking

Year of Establishment 1977

Publicly Listed Joint Stock Company

Total Revenue KD 578,987,000 (As on 31st December 2006)

Net Profit         KD 162,004,000 (As on 31st December 2006)

Number of Employees: 1809

Boubyan Petrochem

Activity: Investment in industrial and petrochemical projects

Sector: Industrial

Year of Establishment 1995

Publicly Listed Joint Stock Company

Total Revenue: KD 9,714,000 (As on 31st December 2006)

Net Profit          KD 8,280,000 (As on 31st December 2006)

Number of Employees: 180

Gulf Petroleum Investment

Activity: Offshore and onshore oil field services including drilling, supply of parts, equipment, engineering, and consulting for upstream and downstream related projects

Sector: Services

Year of Establishment: 1998

Publicly Listed Joint Stock Company

Total Revenue KD 8,287,000 (As on 31st December 2006)

Net Profit         KD 7.016,000 (As on 31st December 2006)

Number of Employees: 259

Performance of Shares of the Companies

The financial performance with respect to the shares of the company can be summarized based on the following table:

Particulars

Kuwait Finance House

Boubyan Petrochem

Gulf Petroleum

Earnings Per Share                 Fils

135.96

137.28

  30.72

Price Earnings                    Times

  21.48

    8.01

  16.27

Book Value                           Fils

612.12

499.93

165.23

Price to Book Value          Times

    4.77

    2.20

    3.03

Net Profit June 2007             KD

116,610,000

15,856,000

2,249,000

Dividend Yield                       %

1.95

 4.55

1.60

Calculation of Portfolio Beta

The market volatility of the share values is denoted by Beta. Beta is the best measure of a security in a large portfolio. Normally shares with a beta value of around 1are considered to be shares with average volatility. Price of shares with higher beta values will fluctuate more and hence the investors have to consider the beta value of the particular shares before they invest. The beta values of the companies under study are tabulated below:

Company

Beta Value

Market Beta

Relationship

Kuwait Finance House

1.00

1

Equal to Market – No abnormal risk is associated with this stock

 

Boubyan Petrochem

0.70

1

Almost near the market beta – Less Volatile than market – No huge risks involved in investing in this stock

Gulf Petroleum

0.659

1

The beta value is less than one the stock is not highly volatile – No abnormal risk is associated with this stock

Company-wise Analysis of Financial Performance

The following section of the paper provides a report on the financial performance of the individual companies:

Kuwait Finance House

Executive Summary

The Company established with strong Islamic values offers unique and competitive financial products and services to the depositors and shareholders. As at the end of the year 2006 with a market share of one third of consumer finance market in Kuwait the company has reported an increase 17 percent in the depositors’ account and an equal amount of growth in shareholders’ funds. The company’s capital has grown by 12 percent during the year with an increase in the reserves of 32.3 percent. The Company has embarked upon new products using innovative technological developments. The financial performance of the company is presented below:

 

 

Profitability

For the year 2006, the company has realized a total income of KD 579 million which accounts for an increase of 48.4 percent over 2005 and a net profit before distribution of KD 344 million which is an increase of 40 percent over the figures for the previous year. The factors that contributed to a better financial performance by the company are:

A buoyant Kuwaiti economy with an optimistic business environment that had a positive impact on the consumer and corporate sectors has helped the bank to a large extent in furthering its economic achievements.

The positive development of oil prices in the global economy has also contributed for the profitability of the company.

Innovative products from the company like operating lease of motor cars and other commercial vehicles have proved helpful to the company for the improvement in the financial performance.

Improvement in the corporate and consumer customer base is a major factor for the outstanding financial performance of the company.

Dividends and Dividend Policy

The company being an Islamic banking institution follows a policy of paying dividends to the investor depositors. The company has improved the dividend payment from the last year rates. The table below shows the movement in the dividend payouts by the company.

Type of Account

2006

2005

2004

Unconditional Deposit Account

8.458%

6.807%

4.800%

Al-Sedra Investment Deposit

6.578%

5.294%

3.733%

Investment Savings Account

5.639%

4.538%

3.200%

A comparison of the dividend payouts show that the company has been progressive in paying dividends to the investor-depositors.

Stock Performance

The price of the shares of the company in the last trading stood at KD 2.18 with a year to date reduction of 11.048 percent. The 52 week high of the share price was KD 2.62 and the 52 week low was at KD 1.71.The company’s market cap is KD. 2,671,031,702 and is ranked 3rd in Kuwait based on the value of market cap.

Source:

 

Analysis of Working Capital

As of the end of the year 2006 the company had total assets of KD 6,313 million and a total liability of KD 5,099 million. Out of the total assets current assets amount to KD 4,059 million and current liabilities KD 1,080 million. The amount due on depositors is KD 3,729 million. The company has leased assets, investments and trading assets to the extent of KD 2,254 million. On the analysis of the assets and liabilities it can be observed that the bank has employed the depositors’ funds in short term international investments and other lending portfolios.

Boubyan Petrochem

Executive Summary

The company was just a holding company from the incorporation in the year 1995 till the year 2000 for its investments in Equate Petrochemical Co. Now the company is manufacturing all kinds of petrochemical products and any derivatives of petrochemicals. The company is engaged in the sale, supply, distribution, and export of all of its production. The company also participates in all other related activities including construction and leasing of the required facilities and services.

Profitability

The profitability and turnover of the company is provided in the following table:

Particulars

2004

(KD ‘000)

2005

(KD ‘000)

2006

(KD ‘000)

Net Sales

1,118

1,573

9,714

Earnings Before Interest Depreciation and Tax

15,983

29,052

1,710

Earnings Before and Tax

12,447

36,081

8,280

Net Profit

12,447

38,967

8,280

Net Profit Margin

1113.33%

2477.24%

85.24%

Source:

The company has been progressing well during the year 2005. However the performance of the company is showing a distorted picture due to some regrouping of the revenues.

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Stock Performance

The share price of the company at last traded position was KD 0.750 with a year to date reduction of -3.523 percent. The 52 week high is KD 1.050 and the 52 week low is at KD 0.65.

The company has a market capital of KD 315,000,000 which is ranked at 24 based on market cap position.

Source: http://www.ameinfo.com/financial_markets/Kuwait/Company_KW0018/>

 

Analysis of Working Capital

In the absence of detailed published annual report the available information on the assets position of the company is appended below:

Particulars

2004

(KD ‘000)

2005

(KD ‘000)

2006

(KD ‘000)

Fixed Assets

5,405

5,212

6.202

Current Liabilities

1,856

4,294

5.538

Long Term Debt

11,676

8.946

52,285

Shareholders’ Equity

104,790

182,046

190,924

Current Ratio

60.84

44.27

43.98

Debt/Capital

0.10

0.05

0.21

Source:

From the analysis of the available information there is an increase in the long term liabilities during the year 2006. There appears to be an increase in the current liabilities which has affected the current ratio in the year 2006.

Gulf Petroleum Investment

Executive Summary

Gulf Petroleum Investment Company was established in the year 1988. The company was formed as a Kuwaiti shareholding company. The company’s main focus is on providing services in oil, gas, and petrochemical sectors. The major activities of the company include oil field services, drilling offshore and onshore, and supply of parts and equipments. The company also undertakes consultation services for upstream and downstream related products. The principal shareholders of the company include International Investment Group Kuwait, Grand Real Estate, Kuwait and Investors Bank, Bahrain. The company currently operates in Kuwait, Egypt, United Arab Emirates, and plans to expand in Syria. An analysis of the financial performance of the company is produced below:

Profitability

On the basis of available financial information about the company, the company has made total revenue of KD 8,287,000 during the year 2006 (KD 7764,000 – for 2005). The net profit reported for the year 2006 is KD 7,016,000 (KD 2,937,000 – for 2005) The company’s assets have enhanced in value to KD 52,352,000 in the year 2006 as compared KD 20,350,000 in 2005.

There has been a corresponding increase in the shareholders’ equity to KD 23,241,000 for the year 2006 against KD 16,445 for the year 2005. The company has reported a net profit of KD 3.6 million for the first nine months of the year 2007.The earnings per share rose from 5.3 fills a year ago to 24.9 fils in 2007.

The factors that contributed for the higher net earnings of the company were:

The general buoyancy in the Kuwaiti economy coupled with the increase in oil prices mainly contributed to higher earnings of the company.

Since the company’s major shareholders have a good business connection not only in Kuwait but in the whole of Gulf the company was able to attract new contracts

The technical excellence of the company in varying fields related to petroleum industry has helped the company to realize more business (GUPICO)

Stock Performance

The share of the company closed at KD 0.690 with a year to date variation of -28.962 percent. The 52 week high sale price was KD 0.800 and the 52 week low was KD 0.240, The Company has a market cap of KD 69,000,000 which is ranked at 83 on the basis of the market capital. The movements in the share price during the last 12 months are depicted in the following graph.

Source:

 

Dividends and Dividend Policy

 In the absence of a published annual report and detailed information on the financial position of the company it was not possible to make a comprehensive report on the dividend policy of the company.

 

References

 

GUPICO

Kuwait Finance House Annual Report 2005

http://www.kfh.com/english/AboutUs/Annual-Report/AR2005/KFH-AR2005.pdf

Kuwait Finance House Annual Report 2006

http://www.kfh.com/english/AboutUs/Annual-Report/AR2006/KFH-AR2006.pdf

 

Zawya.com ‘Kuwait Finance House’

 

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