1

2

Introduction

The report was all about security selection through fundamental and technical analysis, then

creating a five stocks portfolio. Fundamental analysis have done by using different valuation

models. Among the five stocks are analyzed by DDM model, Market multiplier model, FCF

model. After doing the Fundamental analysis, technical analysis was conducted to support the

hypothesis of Fundamental analysis.

By using recent 6 months price, returns was calculated for every 5 stocks and then returns

distribution curve has been constructed to show the characteristics of individual stock return.

After that we calculate annualized return and risk for every 5 stocks. To show the relationship

between these 5 stocks we calculated covariance matrix.

In the 2nd part we created 20 different combinations by using these 5 stocks. To identify the

most efficient portfolio, we graphed the efficient frontier. And after that we showed the beta

relationship between these 5 stocks. And from the graph we choose the most efficient portfolio

in which we can invest.

3

Part One:

SECURITY ANALYSIS and SELECTION

4

Market Return

We calculated market return to analyze the stocks fundamentally.

5

Stock 1: AMCL(Pran)

PRAN’ stands for Program for Rural Advancement Nationally. PRAN GROUP was born in 1980 .

Since then, over the years, they have diversified our activities. Today they are the largest

processors of fruits vegetables in Bangladesh. They have shown the way of contract farming in

Bangladesh for the first time and procure raw material directly from the farmers and processes

through high-tech machinery at their several factories into hygienically packed food and drink

products. As they are the largest contract manufacturer, they promote contract farmers and

help them produce quality crops with increased yields and to obtain fair prices.

The head offices are located at Dhaka. Their management is trendy and able to be tailored to

their environmental cultural change. Their largest asset is our competent team of hands-on

mangers dedicated employees.

The principle activities of the company are processing & marketing of agro products i.e. fruit

juices, mango bar etc., and processing & marketing of non-agro products i.e. mineral water, tea,

drinks etc. Production capacity of the company is 67110000 pcs/pkt juice and drinks,

18820000pcs of mineral water, 16650000pcs/pkt of soft drinks, 11580000pcs/pkt of rice,

mango bar, tea, and others, and 70000000pcs/pkt. of export of juice, drinks, rice and others.

6

ROA 3.57%

ROE 9.99%

Debt to equity ratio 0.42

7

Fundamental Analysis

AMCL is a leading company in Food And Allied sector in Bangladesh. To calculate the intrinsic

value of this stock we chose 4 other companies – BATBC, Olympic, Finef foods, Ghail. Then we

calculated industry average P-E ratio(29.168) also the EPS(7.52). We multiply the EPS with the

average P-E ratio. We got the intrinsic value (219.34) which is more than the last market

price(211.7). So, we can see that this share is undervalued. So we are going to invest in this

share.

Technical Analysis

To support the hypothesis of our fundamental analysis we conducted technical analysis.

P/E Ratio P/B ratio P/s Ratio Revenue Growth Operating growth ROA ROE

AMCL(Pran) 31.98 10.87% -0.61% 3.57% 9.99%

BATBC 25.47 11.93% 14.44% 20.73% 45.06%

Olympic 34.07 21.89% 47.81% 24.27% 41.04%

FINEF foods 30.41 2.41% 48.38% 0.09% 0.62%

GHAIL 26.16 83.81% 140.44% 3.89% 8.88%

Average 29.618 26.18% 50.09% 10.51% 21.12%

AMCL has higher P/E ratio than industry average but Lower ROA and ROE compared to the industry average.

Industry P/E ratio 29.168

EPS 7.52

Intrinsic value 219.3434

Market price 211.7

The market price is higher than the intrinsic value , so it's undervalued.

As an investor we will buy the stocks.

8

9

Price Volume Chart:

Return Distribution of AMCL( Pran)

020000400006000080000100000120000140000160000

180000

200000

180185190195200205210215220

225

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Price volume chart of AMCL( Pran)

Volume

Price

-500.00%

0.00%

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1000.00%

1500.00%

2000.00%

2500.00%

3000.00%

Return distribution of AMCL

10

Skewness and Kurtosis

Here the skewness shows negative value that means the negative return return exceeds that of

positive return. So the chances of getting negative return is higher.

The kurtosis shows the extent to which the value of the variable fall above or below the mean

and manifest itself as a fat tail. Here the AMCL’s kurtosis is 3.731698 that means chances of

getting negative return is higher than the positive return.

Regression Line by using trend line and scatterplot

count 123

max 2.90%

min -4.33%

range 7.23%

bin 19

per bin 0.003805

Skew -0.02608

Kurtosis 3.731698

y = -0.003021x + 0.001642R² = 0.000023

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

-5.00% -4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00%

DSEX vs. AMCL

11

Stock 2: Jamuna Bank

Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act, 1994 of

Bangladesh with its Head Office currently at Hadi Mansion, 2, Dilkusha C/A, Dhaka-1000,

Bangladesh. The Bank started its operation from 3rd June 2001.

The Bank provides all types of support to trade, commerce, industry and overall business of the

country. JBL's finances are also available for the entrepreneurs to set up promising new

ventures and BMRE of existing industrial units. Jamuna Bank Ltd., the only Bengali named 3rd

generation private commercial bank, was established by a group of local entrepreneurs who are

well reputed in the field of trade, commerce, industry and business of the country.

The Bank offers both conventional and Islamic banking through designated branches. The Bank

is being managed and operated by a group of highly educated and professional team with

diversified experience in finance and banking. The Management of the bank constantly focuses

on understanding and anticipating customers' needs. Since the need of customers is changing

day by day with the changes of time, the bank endeavors its best to device strategies and

introduce new products to cope with the change. Jamuna Bank Ltd. has already achieved

tremendous progress within its past 15 years of operation. The bank has already built up

reputation as one of quality service providers of the country.

12

Fundamental Analysis

To analyze the stock value of Jamuna Bank limited we chose dividend Growth Rate model as the

firm paying dividend to its stockholder every year.

The bank’s stocks’ intrinsic value(20.7043) higher than the market price(12.005). So we will buy

the stock as investors, because the stock is underpriced.

2015 2014 2013 2012 2011

Revenue Growth 13.79% 4.27% -6.01% 12.75% 15.73%

Operating profit growth 13.79% 4.27% -6.01% 12.75% 15.73%

Net profit growth 17.66% 15.40% 9.10% -29.94% 21.16%

ROE 0.10 0.12 0.13 0.12 0.19

ROA 0.011 0.010 0.010 0.010 0.016

Debt to equity 10.936 12.116 12.000 11.916 8.119

13

Technical Analysis:

To support our fundamental analysis, we conducted technical analysis which is showing upward

trend and it’s showing that the price of Jamuna is increasing day by day.

Jamuna bankYear EPS Dividend Div Payout EPS growth PE ratio

2010 2.92 2.2 75.34% 18.82

2011 3.65 2.3 63.01% 25.00% 9.46

2012 2.32 1.4 60.34% -36.44% 9.34

2013 2.54 1.5 59.06% 9.48% 6.44

2014 2.61 1.9 72.80% 2.76% 5.71

2015 3.67 1.95 53.13% 40.61% 5.52

Div payout 63.95%

Growth 8.28%

average PE ratio of last 5 years 7.294

Using constant growth model Year Eps Div PV

D1 2.111512 1 2016 3.973974 2.541267 2.029766

G 8.28% 2 2017 4.303125 2.751752 1.755499

R 25.20% 3 2018 4.659538 2.97967 1.518292

V0 12.48135 4 2019 5.045472 3.226467 1.313136

5 2020 5.463372 3.493704 1.135702

Terminal price for year 5

5 Price 39.84984 12.95403

Intrinsic Value 20.70643

Market Price 12.005

As the stock is underpriced we will buy the stock

14

Price Volume Chart

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Price volume chart of Jamuna Bank

volume

price

15

Return Distribution Curve

Skewness and Kurtosis:

Here the skewness is 0.702064, that means Jamuna’ s positive return exceeds than negative

return. So the chances of getting positive return is higher.

And the kurtosis is 9.594988, which indicates chances of getting more positive return is higher.

-500.00%

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Return dsitribution of Jamuna

count 123

max 9.43%

Min -7.39%

Range 16.82%

Bin 19

Per bin 0.008854

skewness 0.702064

kurtosis 9.594988

16

Regeression line using the trend Line and Scatterplot

y = 0.1542x + 0.0013R² = 0.3027

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

-10.00% -5.00% 0.00% 5.00% 10.00% 15.00%

Dsex Vs. Jamuna

17

Stock 3: IDLC Finance Limited

IDLC was initially established in Bangladesh in 1985 through the collaboration of International

Finance Corporation (IFC) of the World Bank, German Investment and Development Company

(DEG), Kookmin Bank and Korean Development Leasing Corporation of South Korea, the Aga

Khan Fund for Economic Development, the City Bank Limited, IPDC of Bangladesh Limited, and

Sadharan Bima Corporation. As the company evolved, initial foreign shareholding of 49% was

gradually withdrawn and the last foreign shareholding was bought out by local sponsors in

2009.

Although we initially started with Lease Financing as our core product, IDLC has grown to

become the largest multi-product Non-Bank Financial Institution of Bangladesh, with almost

equal focus in Corporate, Retail and SME sectors. Moreover, IDLC has a significant presence in

the Capital Markets. Our merchant banking arm, IDLC Investments Limited, a wholly-owned

subsidiary of IDLC is a premier brand for investment banking in the country. Our stock

brokerage arm, IDLC Securities Limited, another wholly-owned subsidiary of IDLC is also

amongst the top five brokers in the country.

Over the years, IDLC has attained a significant presence in the corporate sector of Bangladesh.

IDLC is highly respected by our clients, peers, employees and regulators for our strong

corporate governance, statutory compliance, high ethical standards, a progressive and enabling

working environment, and strong commitment to environmental and social development.

IDLC continues to play a pioneering role in introducing and popularizing a variety of financial

instruments suiting ever-changing requirements of its fast-growing clients. We are continuously

expanding our presence to ensure the best quality of service to our clients at all times.

18

Fundamental Analysis:

To calculate the intrinsic value of fundamental analysis we choose other 4 companies to

calculate the industry average and also found out the EPS of the company. Then we just

multiplied the EPS(5.82) with the industry average P-E ratio(26.56). The intrinsic value(154.57)

is higher than the current market price(59.5), so as investor we will invest in the stock.

2015 2014 2013 2012 2011

Revenue Growth 15.48% 28.06% 15.75% 9.89% 19.97%

Operating profit growth25% 31% 11% 7% -67%

Net profit growth 15% 46% -6% 30% -165%

ROE 0.19 0.19 0.12 0.15 0.13

ROA 0.020 0.021 0.013 0.019 0.016

Debt to equity 6.829 7.051 8.404 8.027 8.432

19

Technical Analysis:

IDLC

P/E ratio P/S P/B Revenue growthOperating growth Profit ROA ROE

IDLC 10.15 21.32% 35.38% 1.99% 18.74%

DBH 17.2 16.48% -42% 1.92% 21.61%

IPDC 22.26 37% -17.42% 2.93% 3.71%

MIDASIFIN 56.83 -15.81% -36.97% 0.67% 4.80%

NHFL 26.36 13% -16.06% 3.06% 13.95%

Average 26.56 14.40% 2.11% 12.56%

IDLC is trading at a lower PE ratio than industry average but has a higher ROE % average ROA than industry average. Then we think it is chearper compared to industry.

Industry PE 26.56

EPS 5.82

Intrinsic value 154.5792

Market price 59.5

Since the Stock is under valuued , we will buy the stock

20

Price Volume Chart:

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Price Volume chart of IDLC

volume

price

21

Return distribution Curve:

Skewness and Kurtosis:

Here the skewness ais -0.77932, which indicates that negative return exceeds the positive

returns is more.

The kurtosis is showing that the negative outlier is most than the Positive outlier.

-1000.00%

0.00%

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2000.00%

3000.00%

4000.00%

5000.00%

6000.00%

Return Distribution of IDLC

Count 123

max 9.79%

min -14.73%

range 24.52%

Bin 19

Per bin 0.012905

Skewness -0.77932

Kurtosis 10.4253

22

Regression line using Trend line and Scatterplot

y = 0.0468x + 0.0015R² = 0.0391

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

-20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00%

DSEX vs. IDLC

23

Stock 4: EXIM Bank

Export Import Bank of Bangladesh Limited was established in the year 02 June 1999 as Banking

company under the companies act 1994.The bank converted its banking operation into Islamic

banking based on Islamic Shariah from traditional banking operation on 01 July 2004.The

commercial banking activities of the Bank consists of mobilizing deposits, Providing Islamic

investment facilities, discounting bills, conducting money transfer, foreign exchange transaction

etc.

2015 2014 2013 2012 2011

Revenue Growth 14.86% 11.96% 4.53% 29.19% 27.70%

Operating profit growth 17.25% 13.91% -13.57% 8.18% -22.89%

Net profit growth 26.94% 9.33% -15.66% 6.88% -60.38%

ROE 0.18 0.15 0.16 0.21 0.24

ROA 0.01 0.01 0.01 0.01 0.02

Debt to equity 12.79 13.36 13.68 13.88 13.57

24

Fundamental Analysis:

To calculate the intrinsic value of Exim Bank we chose FCFE model.

We calculate the intrinsic value(48.01248677) which is higher than the current market price(11.1)

So this share is undervalued. We will buy the stock.

Exim bankBDT mn Capex Net borrowing FCF Growth Year PE ratio

Year CFO 2011 15.93

2011 8664 1048 0 7616 2012 16.37

2012 25006 9714 0 15292 101% 2013 12.78

2013 13367 5687 1780 9460 -38% 2014 18.38

2014 54610 45930 1,680 10360 10% 2015 25.31

2015 42928 37511 -255 5162 -50%

average 17.754

average growth rate 5%

r 25.20%

Forecast FCF PV

1 2016 5445.783837 4349.667602

2 2017 5745.16885 3665.170137

3 2018 6061.012721 3088.390507

4 2019 6394.220286 2602.377399

5 2020 6745.746123 2192.847086

Terminal Value in millions calculated using last 5 years PE

5 2020 119763.9767 38931.80716

total 54830.25989

no. of share 1142

intrinsic value 48.01248677

market price 11.1

25

Technical Analysis:

To support the hypothesis we conducted technical analysis. It is supporting our hypothesis

because the graph is showing upward trend.

Price Volume chart

Technical Analysis

Recent candlestick chart of the company shows an upward trend

Chart from lankabd.com

0

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Price Volume Chart of EXIM Bank

Volume

Price

26

Return Distribution

Skewness and Kurtosis

Here the skewness is 0.697829 which shows positive return exceeds the negative returns and

chances of getting positive return is more.

Here the kurtosis is 2.087379 which implies that negative kurt is higher.

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Return Distribution of EXIM

Count 123

Max 8.87%

Min -6.49%

Range 15.36%

Per Bin 19

Bin 0.008087

skewness 0.697829

Kurtosis 2.087379

27

Regression line by using Trend line and Scatter:

y = 0.1832x + 0.0011R² = 0.4768

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

-10.00% -5.00% 0.00% 5.00% 10.00%

DSEX vs. EXIM

28

Stock 5: BEXIMCO Pharma Ltd.

Beximco Pharmaceuticals Ltd (Beximco Pharma) is a leading manufacturer and exporter of

medicines in Bangladesh. Incorporated in the late 70s, Beximco Pharma began as a distributor,

importing products from global MNCs like Bayer, Germany and Upjohn, USA and selling them in

the local market, which were later manufactured and distributed under licensing arrangement.

Since then, the journey continued, and today, Beximco Pharma is one of the largest exporters

of medicines in Bangladesh, winning National Export Trophy (Gold) a record five times.

The company continues to adhere to the global standards and its manufacturing facilities have

been already certified by the regulatory authorities of USA, Europe, Australia, Canada, Latin

America and South Africa. Over the last three decades Beximco Pharma has grown from

strength to strength but the simple principle on which it was founded remains the same:

producing high quality generics and making them affordable. Ensuring access to quality

medicines is the powerful aspiration that motivates more than 3,000 employees of the

company, and each of them is guided by the same moral and social responsibilities the

company values most.

29

Fundamental Analysis:

To calculate the intrinsic value of BEXIMCO Pharma we chose market multiplier model.

First we chose another 4 company , by which we calculated industry average P-E ratio and find

out the EPS. By multiplting this two we get intrinsic value of 126.1824. The intrinsic value is higher

than the market value of 118.6. So this share is undervalued and we will buy the share.

2015 2014 2013 2012 2011

Revenue Growth 8.08% 6.08% 2.88% 17.99%

Operating profit growth 3.88% 5.01% 9.94% 17.74%

Net profit growth 21.80% 8.08% 6.08% 2.80% 17.99%

ROE 0.08 0.07 0.07 0.07 0.07

ROA 0.06 0.05 0.05 0.05 0.06

Debt to equity 1.34 1.34 1.39 1.39 1.35

30

Technical Analysis:

To support our hypothesis in fundamental analysis we conducted technical analysis.

In the first graph this is showing the industry average of pharmaceuticals. This is supporting our

finding in industry average P-E ratio.

BEXIMCO

P/E ratio p/b ratio' Revenue Growth Operating Growth ROA ROE

BEXIMCO 21.62 6.83% 4.04% 45.550% 21.58%

ACI 19.51 16.49% 28.84% 31.180% 9.19%

IBNSINA 21.5 18.06% 33.93% 40.030% 7.31%

Square 16.7 14.68% 17.31% 44.000% 27.01%

GHCL 22.43 -8.22% -8.65% 40.270% 34.57%

Average 20.352 9.57% 40.206% 19.93%

Industry average 20.352

Eps 6.2

Intrinsic value 126.1824

Market price 118.6

Since the market price is lower than the intrinsic value, the stock price is undervalued.

As investor we will buy the stock.

31

In the second graph this is showing that the price is changing in upward trend. Per year the

price of Beximco is increasing.

Price Volume Chart:

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Price Volume Chart of BEXIMCO

Volume

Price

32

Return Distribution Curve

Skewness and kurtosis

Here the skewness is 0.587121, that means the positive returns than negative returns. That

means chances of getting higher positive returns is more.

Here the kurtosis is 1.74 that means there are no exceed return.

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Return Distribution of BEXIMCO

Count 123

Max 8.43%

Min -7.58%

Range 16.01%

Bin 19

Per bin 0.008427

Skewness 0.587121

kurtosis 1.741256

33

Regression line using Scatters and Trend Line:

y = 0.1174x + 0.0011R² = 0.2116

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

-10.00% -5.00% 0.00% 5.00% 10.00%

DSEX vs. BEXIMCO

34

PART TWO:

Portfolio Formation of all selected 5 stocks

35

Table 1: Annualized Return and Risk of five Stocks

Table 2: Covariance Matrix

AMCL Jamuna IDLC EXIM BEXIMCO

Daily variance 0.0091% 0.0475% 0.0667% 0.0531% 0.0569%

Daily stev 0.956% 2.180% 2.582% 2.304% 2.385%

No. of trading days 250 250 250 250 250

Annualized variance 2.28% 11.88% 16.66% 13.27% 14.23%

Annualized Stev 15.11% 34.47% 40.82% 36.42% 37.72%

Daily Average return -0.0008% 0.25% 0.22% 0.32% 0.43%

Annualized Return -0.20% 63.3% 54.1% 80.4% 108.3%

AMCL JAMUNA IDLC EXIM BEXIMCO

AMCL 0.000107 0.000046 0.000014 -0.000036 0.000032

JAMUNA 0.000046 0.000307 0.000024 0.000122 0.000137

IDLC 0.000014 0.000024 0.000071 0.000072 0.000040

EXIM -0.000036 0.000122 0.000072 0.000314 0.000108

BEXIMCO 0.000032 0.000137 0.000040 0.000108 0.000263

36

Table 3: Twenty Different Combinations of All Five Stocks

Weight Weight Weight Weight Weight Return variance Stev

Combination 1 100% 0% 0% 0% 0% -0.20% 0.0107% 1.033%

Combination 2 95% 5% 0% 0% 0% 2.98% 0.010% 1.008%

Combination 3 90% 5% 5% 0% 0% 5.69% 0.009% 0.964%

Combination 4 85% 5% 5% 5% 0% 9.72% 0.008% 0.905%

Combination 5 80% 7% 3% 10% 0% 13.94% 0.008% 0.868%

Combination 6 75% 10% 10% 5% 0% 15.61% 0.007% 0.856%

Combination 7 70% 10% 8% 12% 0% 20.17% 0.007% 0.818%

Combination 8 65% 12% 10% 13% 0% 23.33% 0.006% 0.804%

Combination 9 60% 15% 15% 10% 0% 25.53% 0.006% 0.796%

Combination 10 55% 15% 15% 15% 0% 29.56% 0.006% 0.785%

Combination 11 50% 15% 15% 15% 5% 34.99% 0.006% 0.788%

Combination 12 45% 15% 15% 15% 10% 40.41% 0.006% 0.802%

Combination 13 40% 15% 15% 15% 15% 45.84% 0.007% 0.824%

Combination 14 35% 15% 15% 15% 20% 51.26% 0.007% 0.855%

Combination 15 30% 15% 15% 15% 25% 56.68% 0.008% 0.893%

Combination 16 25% 15% 15% 15% 30% 62.11% 0.009% 0.938%

Combination 17 20% 15% 15% 15% 35% 67.53% 0.010% 0.989%

Combination 18 15% 15% 15% 15% 40% 72.96% 0.011% 1.045%

Combination 19 10% 15% 15% 15% 45% 78.38% 0.012% 1.104%

Combination 20 5% 15% 15% 15% 50% 83.81% 0.014% 1.168%

37

Efficient Frontiere Curve

So our portfolio weight will be- 10% of AMCL(Pran),15% of jamuna, 15% of IDLC, 15% of EXIM

and 40% of BEXIMCO. Our portfolio return and risk will be respective 78.38% and 1.04%.

So, our portfolio in which we are going to invest is Combination 19. This combination has ghiger

return compare to the risk that it’s associated. And this hypothesis is backed by the efficient

frontier that we have drawn.

-10.00%

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0.000% 0.200% 0.400% 0.600% 0.800% 1.000% 1.200% 1.400%

Re

turn

Risk

Efficient Frontiere

DD

A

CML

Minimum Variance Portfolio

Optimu portfolio

38

Table 4: Beta of each 5 stock

Here it is spontaneously showing that AMCL has higher unsystematic risk total risk as well as

market risk and IDlC has higher unsystematic risk and total risk as well as market risk. Same

relationship are showing by the other companies as well. So the total risk and market risk of all

the company are showing direct relationship.

Conclusion:

After all the analysis, we can see that there is only one combination or portfolio of five stocks

which is dominating all the other portfolios. And this portfolio has the highest return compare

to the risk. And investors will want to have this portfolio.

AMCL(Pran) Jamuna IDLC EXIM Bank Beximco

Annualized Standard Deviation 15.11% 34.47% 40.82% 36.42% 37.72%

Beta 0.967746943 1.174184062 1.368380352 1.142123174 1.564825664

39

40

41