2015

Session 12

Security Analysis

Azfer Naseem, CFA

2015

Financial Modelling

Security Analysis Azfer Naseem, CFA3

Financial Statement Analysis Framework

Collect Input Data

Process Data

• Financial statements/other data

• Discussions with industry players

• Company site visits

• Data from previous phase

• Organized financial statements

• Financial data tables (excel sheets)

• Adjusted financial statements

• Common-size statements

• Ratios and Graphs

• Models/Forecasts

Articulate the

purpose & context

of Analysis

Phase

• Equity Analyst

Sources of Information

• Prepare a detailed financial model on

Attock Cement.

• Estimate Jun-16 Target Price

• Give a recommendation

Output

Security Analysis Azfer Naseem, CFA4

About Attock Cement

Incorporated in 1981 and commenced production in 1988.

Owned by Pharon Group, which holds 84% equity in the company.

Plant located at Hub and has 2 production lines:

Line-1: 0.75 million tons per annum (Romanian Plant)

Line-2: 1.0 million tons per annum (Chinese Plant)

Plants use coal as fuel base for kiln.

Buys electricity from KESC.

Has a 12 MW Waste heat plant.

Sells cement under the brand of Falcon Cement.

Security Analysis Azfer Naseem, CFA5

Key forecast themes

Demand Outlook

Local

Export

Margin Outlook

Selling Prices

Production Cost

Capacity additions

Efficiency Projects

Security Analysis Azfer Naseem, CFA

Forecasting revenues

Exports

Calculate historical export retention – USD/ton

Forecast in USD terms based on export market outlook

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Security Analysis Azfer Naseem, CFA

Forecasting COGS

Raw & Packaging material cost

Forecasted on a per ton basis based on historical growth trend of per ton costs

Other Cost

Forecasted on a per ton basis based on historical growth trend of per ton costs

Fuel Cost

Linked to coal price

Assume a kiln heat rate ==== 850,000 kcal per ton

Assume a coal heating value === 6,300 kcal per kg

Calculate coal requirement === 135 kg per ton

Take historical coal price

• FOB price + sea freight (USD20) + port charges and inland freight (USD10)

Pre estimates for fuel cost for last few years

Back test

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Security Analysis Azfer Naseem, CFA

Forecasting COGS

Power Cost KESC

Take an electricity requirement assumption

Take electricity price

Calculate historical power cost estimates

Back test and adjust electricity requirement assumption

Waste heat

Take waste heat capacity

Take a utilization assumption

Assume a nominal cost for waste heat

Calculate weighted average

Share of KESC in in overall electricity mix

Share of waste heat in in overall electricity mix

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Security Analysis Azfer Naseem, CFA9

Forecasting other financial statement items

Depreciation

Based on capex forecasts and fixed assets schedule

Financial charges

Based on debt repayment schedule and interest rate

Other income

As %age of cash

Other charges

As %age of operating profit

Taxation

Tax rate of 32%

Security Analysis Azfer Naseem, CFA10

Forecasting other financial statement items

Capital expenditure

Maintenance capex + expansion plans

Other assets/liabilities

%age of sales

Deferred taxation

Based on analysis of taxation information

Dividends

Based on cash flow statement and company’s dividend policy

Security Analysis Azfer Naseem, CFA

Asset schedule

Net PPE

Gross PPE less accumulated depreciation

Gross PPE

Beginning

Additions

Disposals

Ending

Accumulated Depreciation

Beginning

Additions (depreciation Expense)

Disposals

Ending

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Security Analysis Azfer Naseem, CFA

Asset Schedule

Depreciation Expense

Depreciation %

1 / useful life

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Security Analysis Azfer Naseem, CFA

Debt Schedule

Loan Size

Repayment schedule

Grace period

Installment size

Installments in a year

Interest rate

Bench mark

Spread

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