Security Analysis and Portfolio Management (FIN 405)

Security Analysis is a step of Portfolio Management.

Management

Planning and Management

Portfolio Management

Steps of Portfolio Management

1) Security Analysis: To find out attractive securities.

Intrinsic value> market price means underpriced then we should buy share

Intrinsic value< market price means overpriced then we should sell share

Intrinsic value=market price means fairly priced then we can buy or not

2) Portfolio Analysis: To form Portfolio from the attractive securities and calculate the risk
and return of the portfolio.
3) Portfolio Selection: To identify the optimal portfolio from the feasible
set of portfolio. The Point at which indifferent curve is tangent to
efficient frontier known as optimal portfolio.

4) Portfolio revision: To buy and/or security to ensure the optimality of

the portfolio.

5) Portfolio evaluation: To evaluate how well the portfolio has

performed by comparing the performance of the portfolio with
standard.
Technical analysis versus Fundamental Analysis:

Technical analysis means forecasting share price based on the historical share
price movement.

price

Jan June dec june dec

2019 2020

Fundamental analysis means forecasting share Price based on the fundamental

factors that affect the share price.
Method of issuing share:
1) Right issue: The existing shareholders are given the right to buy share
according to the proportion of shareholding.

2) Private placement: Shares are issued to institutional investors

3)Public offer: Share are issued to general investors

a) Book building method: Book method is used when share issued at

premium

b) Fixed Price method: This method is used when company issue share at
par value
 Fund
Fund

SBU(Households) Financial Market

DBU (Squrae Com.)
(Investment Banks)
Share of Share of
Square Square
Criterial for public offer ( general criteria)

1) It has prepared its financial statements in accordance with the

requirements of the Securities and Exchange Rules, 1987.

2) Regularly holds AGM

3) No director and shareholder holding more than 10% share is bankrupt.

Specific criteria ( fixed price method)

1) Offer size 10% of paid up capital or 15 crore, which one is higher

2)The firm should have minimum paid capital 15 crore

3) Operation ≥ 3 years, must have positive NPAT and NOCF for ≥ 2 years
4 ) Operation ≤ 3 years, must have positive NPAT and NOCF for ≥ 1 year
5) Operation ≤ 1 years, must have projected positive NPAT and NOCF for next year.

6) At least 35% of the issue has been underwritten on the firm commitment
basis.
Specific Criteria for Book Building method:
1) It intends to raise at least an amount of Tk. 50 (fifty) crore through the public offer;
and

2) It has minimum existing paid up capital of Tk. 30 (thirty) crore.

3) It has been in commercial operation at least for preceding 3 (three) years;

4) It has made net profit after tax at least for immediate preceding 2 (two) financial
years;

5) It has positive net operating cash flow at least for immediate preceding 2 (two)
financial years;

6) Thirty five percent (35%) of the issue has been underwritten on a firm commitment
basis by the underwriter(s).
Categories of Securitas

A categories: regular in holding the annual general meetings and

dividend at the rate of ten percent or more in the last English calendar year.

B categories: regular in holding the annual general meetings But failed to pay
dividend at the rate of ten percent or more in the last English calendar year.

Z Categories: Failed to hold AGM

Failed to pay any dividend
not in operation continuously for more than six months
accumulated loss exceeds its paid up capital
G categories: listed with the CSE before the company goes into commercial

operation and prior to listing the said company declares the year of first

declaration of dividend.

N categories: listed companies except green‐field companies which shall be

transferred to other categories in accordance with their first dividend

declaration and respective compliance after listing of their shares.

Cut-off price: “Cut-off price” means the lowest price offered by the bidders at
which the EI portion of total issue could be exhausted.
Determination of the cut-off price:
• Eligible investors shall participate in the electronic bidding process and submit
their intended quantity and price.
• No eligible investor shall quote for more than 10% (ten percent) of the total
amount offered to the eligible investors;
• Eligible investors’ bidding shall be opened for 72 (seventy two) hours round
the clock;
• The bidding will be conducted through an uniform and integrated automated
system of the exchanges, especially developed for book building process;
• The value of bid at different prices will be displayed on the screen without
identifying the bidders;
The bidders shall deposit at least 20% (twenty percent) of the bid amount in advance
in the designated bank account maintained by the exchange conducting the bidding;

The bidders can revise their bids for once, within the bidding period, up to 20%
variation of their first bid price;

After completion of the bidding period, the cut-off price will be determined at
nearest integer of the lowest bid price at which the total securities offered to eligible
investors would be exhausted;

The securities shall be offered to general public for subscription at an issue price to
be fixed at 10% discount (at nearest integer) from the cut-off price;

The issuer and the issue manager shall prepare the draft prospectus including
relevant information and submit with relevant documents, simultaneously to the
Commission and the exchanges within 5 (five) working days from the closing day of
bidding.
 Distribution mechanism of securities:

Issue method Eligible investors (EIs) General public

Mutual Funds Other EIs NRB Others

Fixed price 10% 40% 10% 40%

Book building 10% 50% 10% 30%

In case of under-subscription in any category by up to 35% in an initial public offer,

the unsubscribed portion of securities shall be taken up by the underwriter(s): further
provided that in case of under-subscription in any of categories above 35%, an initial
public offer shall be considered as cancelled.