Sultan Qaboos University

College of Economics and Political Science

Economics and Finance Department

Financial Analysis & Valuation

(FINA3351)-Fall 2021

Financial Analysis & Valuation of

Oman Cement Company

Submitted by:

Ola Al Abri 120640

Taif Al Balushi 122030

Eshraf Al Busaidi 119020

Fatma Al Hamhami 122507

Submitted to: Dr. Sreerama Yalamarthy

Date of submission: 16th December 2021

Table of Contents

SECTION 1: MASTERING THE DETAILS OF OMAN CEMENT COMPANY: ..................... 3

1.1 ABOUT THE COMPANY ........................................................................................................ 3

1.2 CORPORATE STRATEGY ...................................................................................................... 4
1.3 PRODUCTS AND SERVICES................................................................................................... 4
1.4 MARKET SHARE .................................................................................................................. 4
1.5 REVENUE ............................................................................................................................ 5
1.6 DEMAND ............................................................................................................................. 5
1.7 TECHNOLOGY ..................................................................................................................... 6
1.8 KEY DRIVERS FOR OMAN CEMENT, SAUDI CEMENT AND QATAR INTERNATIONAL .............. 6

SECTION 2: VALUATION USING METHOD OF COMPARABLE ........................................ 7

SECTION 3: VALUATION USING SCREENING ON MULTIPLES........................................ 9

3.1 THE CALCULATIONS OF THE MULTIPLE P/E AS FOLLOWS: .................................................. 9

3.2 RANKING FROM HIGHEST TO LOWEST: ............................................................................... 9

SECTION 4: VALUATION USING FREE CASH FLOW METHOD ..................................... 10

4.1 INTERPRETATION................................................................................................................. 11

SECTION 5: VALUATION USING RESIDUAL EARNINGS METHOD: .............................. 12

SECTION 6: VALUATION USING ABNORMAL EARNING GROWTH MODEL ............... 12

SECTION 7: CONCLUSION AND RECOMMENDATION .................................................... 13

APPENDIX : ............................................................................................................................ 15

OMAN CEMENT COMPANY: (BALANCE SHEET & INCOME STATEMENT) .................................... 15

SAUDI CEMENT COMPANY (BALANCE SHEET & INCOME STATEMENT) ..................................... 17
QATAR CEMENT COMPANY ( BALANCE SHEET & INCOME STATEMENT) ................................... 19
Section 1: Mastering The Details of Oman Cement Company:

1.1 About the company

Oman Cement Company SAOG (OCC) is an Oman-based company that manufactures and

sells cement and associated products. Since 1983, it become to represent Oman's push for self-

sufficiency in key industries. They have provided the building sector fresh impetus, united the

nation's infrastructure development efforts, and developed resources to attain self-sufficiency.

However, it was established before that year; mainly in the year 1978 as part of the renaissance

initiated by His Majesty Sultan Qaboos bin Said. It’s Headquarters in Muscat. Furthermore, its

vision aspires to become the Sultanate's number one cement production firm, as well as one of

the region's leading cement makers. In addition, its mission is devoted to satisfying its

customers' demands by offering high-quality goods and services in an ecologically friendly

way, via a skilled, inspired, and motivated staff, while enhancing the local community and

producing long-term value for our stakeholders. Also the company is listed on Muscat

Securities Market since January 1994, under the name of OCOI. Sulphate resistant cement,

ordinary Portland cement, moderate sulphate resistant cement, Crystal cement, and oil well

cement are among the company’s goods.

Moving on, the company ownership is divided among Oman Investment Fund (53.528%),

Civil Service Employees Pension Fund (8.9989%), Public Authority for Social

Insurance (8.4341%), Ministry of Defence Pension Fund (3.719%), State General Reserve

Fund - Ministry of Finance (2.14%), Oman Development Bank (0.302%) and NBO A/C OGF

A/C GULF BAADER (NA). the company has many subsidiaries/associate companies, owning

different stakes in each, and they are: Al Wusta Cement Co (50.00%), Mondi Oman

LLC (30.00%), Majan Development Co (4.00%), Oman Oil Marketing SAOG (NA) and
Sharakah Co (NA). Moreover, the company has some competitors such as Saudi Cement

company and Qatar national company which we will be compared with latter on.

1.2 Corporate strategy

A strategy is the long-term direction that obtains advantage in a changing environment via the

configuration of resources and expertise with the goal of meeting stakeholder expectations.

Regarding the company, in addition to expanding its cement manufacture, the company

engaged into a discretionary portfolio management arrangement with two businesses,

designating them as portfolio managers to oversee a portion of its stock investments.

1.3 Products and Services

The company does not have a services line, it just have a production line that includes Sulphate

resistant cement, ordinary Portland cement, moderate sulphate resistant cement, Crystal

cement, and oil well cement.

In 1983 the plant taking place to produce cement with production capacity of 624,000 tons

from Ordinary Portland Cement and Sulphate Resistant Cement (the very common types of

cement). In 1999 clinkering production capacity expanded to a total of 1.2 million tons per

year. The second production line was completed in mid of 1998. In the present the company is

working to expand the capacity of plant form 1.26 million tons per year to 1.70 million tons

per year by upgrading production line No.1 and No.2.

1.4 Market share

Oman Cement and Raysut Cement were formed in 1978 and 1981, respectively, and together

they meet 57 percent of Oman's cement demand, with imports filling the remaining 43 percent.

Both industries have previously complained about being undercut by imports from cement

producers in the UAE, which experienced a supply surplus when building activities in the

nation stalled in 2010. In 2005, OCCI was listed on the Muscat Securities Market (MSM) with
33 million shares, and after two years it was listed on Bahrain Stock Exchange (BSE) which

was the beginnings to inter to the GCC securities market.

1.5 Revenue

Oman cement company recorded a revenue of 50,143,753 million OMR in 2020, which is

higher than 2019’s revenue of 48,129,376 million. The increase in revenue can be explained

by the increasing in the construction work which positively impacted the company’s revenue.

However, Omantel has actually revenue declined from 2018 to 2019.

Year 2018 2019 2020 Average growth of revenue

Revenue (in millions) 50,809,483 48,129,376 50,143,753

Growth rate - -5.57% 4.02% -0.78%

Comparing revenues of Oman cement in last three years (2018-2020) gave us an average

growth of revenue of -0.78 %.

1.6 Demand

Oman cement is now in great demand due to its perceived good quality. This reflects the

company's potential cement market opportunity. Given the current state of the local and GCC

markets, Oman Cement Company should reconsider its production and strategy in order to

achieve its target of boosting sales revenue by 10% each year. Although, the demand for the

rest of the products is increasing as well. It is mostly serving the local and international markets;

Since it has a reputation for to produce top quality products, and this allows the company to

find the market for its cement easily.

 1.7 Technology

Because of its great quality, both conventional Ordinary Portland and Sulphate cement are in

high demand. Oman Cement should use new technologies to guarantee that it maintains high-

quality product manufacturing and expands the market segment that is drawn to high-quality

Oman cement.

The rising construction industry in the Gulf Cooperation Council (GCC) is predicted to

enhance cement consumption. Indeed, as a consequence of the area's excellent economic

growth, the governments of the GCC region have proposed a number of massive infrastructure

projects. As a result, the high level of project investment is likely to support the growth

momentum in construction activity. For example, the UAE and Qatar are investing in

infrastructure in preparation for the World Expo 2020 and the FIFA World Cup 2022,

respectively. This provides excellent chances for Oman Cement to reach these markets and

accomplish its ten percent sales revenue growth target over the next five years. In addition, it

is working to develop new marketing strategies as well. Like using the social trends.

1.8 Key Drivers for Oman cement, Saudi cement and Qatar International

The key drivers that impact future financial statement estimates are referred to as key drivers.

Following a comprehensive assessment of the firm's current financial statements and future

prospects, as well as those of two of its rivals, we have identified the primary drivers for each

company that we feel indicate the future economic scenario.

 Oman Cement Saudi Cement Qatar International
Key Driver Company Company Cement
Sales Growth 4.19% 8.15% -6.582%
Current assets/sales 113.33% 73.98% 176.559%

Current liabilities/sale 19.10% 56.47% 39.300%

NFA/sales 217.58% 167.55% 325.832%
Depreciation rate -1.22% -5.31% 16.516%
COGS/sales -82.98% -50.45% -74.909%
General and admin. Expenses/sales -6.28% 11.93% -6.217%

Account receivable 503.35% 393.95% 202.139%

Inventory/sales 50.71% 40.27% 82.332%
Dividend Payout -12% — —

Furthermore, as previously said, the major drivers were assessed based on the current financial

statements and economic environment, taking into account the study done on each

organization. Furthermore, all of the enterprises are regarded as among the main cement

providers in their respective nations, resulting in the positive outlook of the drivers. To explain,

according to their financial accounts, Oman maintains a good indication of sales growth, which

is likely to continue in the future.

Section 2: Valuation Using Method of Comparable

The method of comparable tends to value securities by identifying comparable firms with

similar operations to the firm whose value is in question. In this case, we are looking to value

Oman Cement Company by using 2020 data. Therefore, we identified two comparable firms

from the same industry which are Saudi Cement Company and Qatar National Cement
Company. Then, we have identified three different measures which are the price to sales ratio

(P/S), price to book value ratio (P/B) and price to earning ratio (P/E). We found the results as

in the following table:

Company Saudi Cement Company Qater Cement Company Oman Cement Company
Sales 1,569,633 659,622,002 50,143,753
par value 10.000 1 0.1
Closing price 60.2 5.11 0.235
Sahare capital 1,539,000 653,528,940 33,087,271
EPS 2.98 0.23 0.016
Book value 2,676,936 3,044,060,375 146,884,627
Profit for the year (net profit) 5,182,766

Number of shares 153900 653528940 330872710

Sales per share 10.19904483 1.009323324 0.151549981
Book value per share 17.3939961 4.657881524 0.443930921

P/S 5.902513517 5.062797895 1.550643544

P/E 20.20134228 22.2173913 14.6875
P/B 3.460964326 1.097065259 0.529361639

Average P/S 5.482655706

Average P/E 21.20936679
Average P/B 2.279014793

For Oman Cement Company valuation

P/S 274920933.5
P/E 109923185.1
P/B 334752237.7

Average value of the company 239865452.1

Valuation per share 0.724947827

Since the Current Market price is 0.235, and the value of Oman Cement company is 0.7249. I recommend buying this share

As shown above, the decision is clearly buying the share from Oman Cement Company since

the share is undervalued, and the current market price is 0.235, while the value of this company

is 0.7249.
Section 3: Valuation Using Screening on Multiples

3.1 The calculations of the multiple P/E as follows:

P/E= Closing EPS P/EPS results Ranking

price
Closing price /

EPS (P)

Oman cement 0.235 0.016 0.235/0.016= Third

company
14.6875

Qatar national 5.11 0.23 5.11/0.23= First

cement
22.2173913
company

Saudi cement 60.20 2.98 60.20/2.98= Second

company
20.20134228

3.2 Ranking from highest to lowest:

1 Qatar national cement company

high P/E

Saudi cement company

2

Low P/E Oman cement company

3
 3.3 Interpretation

The above calculations of the P/E multiple state that we should sell Qatar national cement

company share, because it has a high P/E ratio which indicate that this share is overpriced and

the investor should sell it to benefit from the higher overpriced return. On the other hand, the

investor should buy Oman cement company share because it is underpriced and has the lowest

P/E ratio.

Section 4: Valuation Using Free Cash Flow Method

The free cash flow method simply depends on estimating the expected free cash flow during a

specified horizon period. To carry out the valuation method, we first had to forecast the cash

flow from operations and investments from 2021 to 2025 based on the current financial data

of 2020 and key drivers. After that, the FCF has been computed and discounted to the present

value using the appropriate required return of 6.740% of Oman in 2020. In addition, a

continuing value (CV) was also calculated, the long-term growth was based on the GDP growth

of Oman from 2019-2020 which is approximately -3%, hence the continuing value was

Free Cash Flow Method for Oman cement company

Oman cement data 2020
Cash flow from operations 2020 11323318
Growth in cash flow operations 53.440%
Cash flow investment 2020 4425431
Growth in cash flow investment 36.031%
WACC 6.740%
Net Debt 19046535
Number of Shares 330872710.00
GDP growth of Oman in 2020 -3%

Year 2020 2021 2022 2023 2024 2025

cash from operations 11323318 17374480.18 26659373.29 40906097.74 62766247.88 96308425.65
cash from investements 4425431 6019976.10 8189058.24 11139691.21 15153478.80 20613490.55
FCF 6897887.00 11354504.08 18470315.06 29766406.53 47612769.09 75694935.10
PV of FCF for each year 10637534.27 16211377.04 24476246.22 39150908.53 54629953.22
Total PV of 2020 145106019.28
CV 554054932.63
PV of CV 399868168.34
Enterprice value 544974187.61
Net debt 19046535.00
Value of equity 525927652.61
Number of shares 330872710.00
Value per share 1.590
Today closing price in MSX 0.238
calculated as a constant growth. After that, the CV was discounted to the present and added to

the total PV of FCF, to get the Enterprise value of which the net debt was subtracted to get the

equity value. Next, the computed equity value was divided by the number of shares to get the

intrinsic value per share and compared to the current closing price in the market. The results of

the valuation are shown below of Oman cement company:

(The closing price of Oman cement company currently on 11/12/2021; Muscat stock exchange)

calcultaions
4.1 table)
Interpretation

Based on the results of the FCF method of valuation in the calculations above, the estimated

value per share after valuation is equal to OMR 1.590, which is significantly higher than the

December 2021 market price of OMR 0.238 of Oman cement company according to MSX,

therefore the best decision is to buy the share because it is undervalued in the market.
Section 5: Valuation Using Residual Earnings Method:

One of the valuing of company shares method is residual earning method. The value of share

is founding by calculating the residual earnings through the model below.

RE1= Earning 1 – ( Required Return * Book Value 0 )

The decision criteria is if the value per share more than the current market price, the decision

will be buy the share. The table below show the calculation of RE for Oman Cement

company.

The RE expected to grow at 6% after 2024

Numberof shares 330872710
forecast year
2020 2021 2022 2023 2024
EPS 0.2565 0.3127 0.3486 0.3877
DPS 0.0308 0.0375 0.0418 0.0465
BPS 0.4439 0.6696 0.9448 1.2516 1.5927
ROCE 0.57774577 0.467008954 0.368923362 0.309745333
RE (6.74% charge) 0.227 0.268 0.285 0.303
Discount rate (1.0674^t) 1.067 1.139 1.216 1.298
Present value of RE 0.21225245 0.234864522 0.234257284 0.233658498
Total present value of RE to 2024 0.915032754
Continuing Value (CV):(g=6%) 43.44747281
Present value of CV 33.47000107
Value per share 34.8290

The RE of Oman Cement company expected to grow at a constant rate (6%) after 2024. Also

the required return is 6.74% . The value per share of Oman Cement company equal to OMR

34.829 where the current market price is 0.236. In this case, we recommend to buy Oman

Cement company share.

Section 6: Valuation Using Abnormal Earning Growth Model

The model is used to anticipate future stock prices, and it finds that if earnings are greater than

projected, investors should pay more than book value for a stock, and less than book value if

earnings are lower.

AEG 1 = Cum Div Earning 1 – Normal Earning 1

The table below show the calculation of AEG model for Oman Cement company .

The AEG is expected to be zero after 2024

Numberof shares 330872710
forecast year
2020 2021 2022 2023 2024
EPS 0.015663927 0.2565 0.3127 0.3486 0.3877
DPS 0.020 0.0308 0.0375 0.0418 0.0465
DPS reinvested 0.0013 0.0021 0.0025 0.0028
Cum-dividend earnings 0.288604714 0.352325767 0.39292761 0.437007925
Normal earnings 0.017 0.274 0.334 0.372
Abnormal earning growth (AEG) 0.272 0.079 0.059 0.065
PV of AEG (r=6.74%) 0.254717106 0.068951909 0.048617611 0.050030283
Total present value of AEG to 2024 0.42231691
Total earnings to be capitalized 0.437980837
capitalized rate 0.0674
Value per share 6.4982

The AEG expected to be zero after 2024 and the required return is 6.74%. As we observe that

the value of Oman Cement company share equal to 6.4982 where is its current market price is

0.236. As a result, we recommend to buy share from Oman Cement company.

Section 7: Conclusion and Recommendation

To sum up, the report is an attempt to analyze and value the share of Oman Cement

Company. First, we analyze the performance of the firm by mastering the details. Then we

use five methods to value the share of the company which are method of comparable,

screening on multiples, free cash flow method, residual earnings model, and abnormal

earnings model. The table below show the decision of each method:

Method Value per share Current market Decision

Price per share
Method of comparable 0.7249 0.236 Buy
Screening on multiples Buy
Free cash flow method 1.590 0.236 Buy
Residual earnings model 34.8290 0.236 Buy
Abnormal earnings model 6.4982 0.236 Buy

By comparing the current market price with the value per share, all methods used agreed to buy the

Oman Cement Company share as its value higher than its price.
References

• Oman. OMAN CEMENT COMPANY. (n.d.). Retrieved December 12, 2021, from

https://occ.om/.

• Oman Cement WACC %. Oman Cement WACC % | MUS:OCOI - GuruFocus.com. (n.d.).

Retrieved December 16, 2021, from

https://www.gurufocus.com/term/wacc/MUS:OCOI/WACC-/Oman-Cement
Appendix :

Oman Cement Company: (Balance Sheet & Income Statement)

Saudi Cement Company (Balance Sheet & Income Statement)
Qatar Cement Company ( Balance Sheet & Income Statement)