Assignment

On

Security analysis and Portfolio Formation at

Dhaka Stock Exchange Limited

Course Title: Investment Analysis & Portfolio Management

Course Code: FIN-324

Submitted To
Md. Shahbub Alam
Lecturer, Dept. of Business Administration
Sonargaon University (SU)

Submitted By
Name: Kaniz Fatema Kanta
ID: 1901016045
Sonargaon University (SU)

Date of Submission: 19-08-2021

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Letter of Transmittal

19th August, 2021

Md. Shahbub Alam

Lecturer, Dept. of Business Administration
Sonargaon University (SU)
Subject: Submission of Assignment on “Security analysis and Portfolio Formation at Dhaka
Stock Exchange Limited

Dear Sir,

I am glad to present my Assignment on “Security analysis and Portfolio Formation at Dhaka

Stock Exchange Limited” as requirement of the completion of my assignment on 3 sectors
Pharmaceutical’s, Bank & Cement.

I have collected all the possible information, which was needed to complete this assignment. It
was a great challenge for me. I enjoyed every bit of this challenge.

I am earnestly thankful to you for your guidance during the preparation of this assignment. I
hope you will appreciate my collective effort put forth hereby.

Thank you for your time & Consideration.

Best Regards,

_____________
Name: Kaniz Fatema Kanta
ID: 1901016045
Sonargaon University (SU)

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 Acknowledgement

First of all, I would like to thank all mighty Allah for giving me the understanding and
enabling me to complete the assignment successfully on time. It is a pleasure to take this
opportunity to thank some people who have encouraged, directed and supported me throughout
the courses.

The successful accomplishment of this project work is the outcome of the contribution of number
of people, especially those who have given the time and effort to share their thoughts and
suggestions to improve the report. I would like to show my gratitude to my course instructor
Md. Shahbub Alam Lecturer, Dept. of Business Administration Sonargaon University (SU)
for helping me and guiding me for preparing my assignment.

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 Executive Summary

Firstly I discuss about the Dhaka Stock Exchanges limited introduction and their function as well
I discuss about portfolio, portfolio Management.

Secondly I discuss about the fundamental tools of security analysis for portfolio formation like
current share price, Earning per share (EPS), Price earnings ratio (P/E), Sponsors share holding
percentage, Net Asset value (NAV), Cash Dividend.

In third stage I shows the security analysis and ranking the company that is chronologically
Pharmaceutical’s, Bank & Cement. After analysis then I shows analysis the ranking. Then I
discuss portfolio formatting.

Finally, I give recommendation and conclusion to analysis that particular company Security
analysis and Portfolio Formation at Dhaka Stock Exchange Limited.

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Table of Contents

SL. No Contents Page No.

01 Chapter 01 06
Overview of Dhaka Stock & Exchange
Function of DSE
02 Definition of Portfolio 07
Definition of Portfolio Management
Process of Portfolio Management
03 Chapter 02 08
Fundamental tools of security analysis for portfolio formation
Current Share Price
Earning per share (EPS)
Price earnings ratio (P/E)
Sponsors share holding percentage
04 Net Asset value (NAV) 09
Cash Dividend
05 Chapter 03 10
Security Analysis & Ranking The Company
Sector-1 Bank
06 Sector-2 Cement 11
07 Sector-3 Pharmaceutical’s 12
08 Portfolio formatting

09 Recommendation for Security Analysis and Portfolio Formation. 14

Conclusion

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 Chapter 01

Overview of Dhaka Stock & Exchange

The necessity of establishing a stock exchange in the then East Pakistan was first recognized by
the government when, early in 1952, it was learnt that the Calcutta Stock Exchange had
prohibited transactions of Pakistani shares and securities. The Provincial Industrial Advisory
Council of Pakistan soon set up an organizing committee for the formation of a stock exchange
in East Pakistan. A decisive step was taken in the second meeting of the organizing committee
held on 13thMarch, 1953.

In the cabinet room, Eden Building, under the chairmanship of A. Khaleeli, Secretary of the
Government of East Bengal, Commerce, Labor and Industries Department, various aspects of the
issue were discussed in detail. The central government’s proposal regarding the opening a branch
of Karachi Stock Exchange at Dhaka did not find favor with the meeting who felt that East
Pakistan should have an independent stock exchange. It was suggested that Dacca Narayanganj
Chamber of Commerce & Industry should approach its members for purchasing the membership
cards at RS. 2000 each for the proposed Stock Exchange. It was thought that the location of the
exchange should be either at Dhaka or Narayanganj or Chittagong. An organizing committee was
appointed consisting of leading commercial and industrial personalities of the province with
Mirza Mehdi Ispahani as the convener in order to organize the exchange.

Function of DSE

The major functions are:

 Listing of Companies (As per Listing Regulations).

 Providing the screen based automated trading of listed Securities.
 Settlement of trading (As per Settlement of Transaction Regulations).
 Gifting of share / granting approval to the transaction/transfer of share outside the trading
system of the exchange (As per Listing Regulations 47).
 Market Administration & Control.
 Market Surveillance.
 Publication of Monthly Review.
 Monitoring the activities of listed companies (As per Listing Regulations).
 Investors grievance Cell (Disposal of complaint bye laws 1997).
 Investors Protection Fund (As per investor protection fund Regulations 1999).
 Announcement of Price sensitive or other information about listed companies through
online.

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Definition of Portfolio

A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and
cash equivalents, including closed-end funds and exchange traded funds (ETFs). People
generally believe that stocks, bonds, and cash comprise the core of a portfolio. Though this is
often the case, it does not need to be the rule. A portfolio may contain a wide range of assets
including real estate, art, and private investments.

Definition of Portfolio Management

Portfolio management’s meaning can be explained as the process of managing individuals’

investments so that they maximize their earnings within a given time horizon. Furthermore, such
practices ensure that the capital invested by individuals is not exposed to too much market risk.

The entire process is based on the ability to make sound decisions. Typically, such a decision
relates to – achieving a profitable investment mix, allocating assets as per risk and financial goals
and diversifying resources to combat capital erosion.

Primarily, portfolio management serves as a SWOT analysis of different investment avenues

with investors’ goals against their risk appetite. In turn, it helps to generate substantial earnings
and protect such earnings against risks.

Process of Portfolio Management

Security Analysis: It is the first stage of portfolio creation process, which involves assessing the
risk and return factors of individual securities, along with their correlation.

Portfolio Analysis: After determining the securities for investment and the risk involved, a
number of portfolios can be created out of them, which are called as feasible portfolios.

Portfolio Selection: Out of all the feasible portfolios, the optimal portfolio, that matches the risk
appetite, is selected.

Portfolio Revision: Once the optimal portfolio is selected, the portfolio manager, keeps a close
watch on the portfolio, to make sure that it remains optimal in the coming time, in order to earn
good returns.

Portfolio Evaluation:

In this phase, the performance of the portfolio is assessed over the stipulated period, concerning
the quantitative measurement of the return obtained and risk involved in the portfolio, for the
whole term of the investment.

The portfolio management services are provided by the financial companies, banks, hedge funds
and money managers.

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 Chapter 02

Fundamental tools of security analysis for portfolio formation

1. Current Share Price: The current price is the most recent selling price of a stock,
currency, commodity, or precious metal that is traded on an exchange and is the most
reliable indicator of that security's present value.
2. Earning per share (EPS): EPS is the portion of a company’s profit that is allocated
to every individual share of the stock. It is a term that is of much importance to
investors and people who trade in the stock market. The higher the earnings per share
of a company, the better is its profitability. While calculating the EPS, it is advisable
to use the weighted ratio, as the number of shares outstanding can change over time.

Earnings per share: Net Income after Tax/Total Number of Outstanding Shares

3. Price earnings ratio (P/E): The Price Earnings Ratio (P/E Ratio) is the relationship
between a company’s stock price and earnings per share (EPS). It is a popular ratio
that gives investors a better sense of the value of the company. The P/E ratio shows
the expectations of the market and is the price you must pay per unit of current
earnings (or future earnings, as the case may be).

Earnings are important when valuing a company’s stock because investors want to
know how profitable a company is and how profitable it will be in the future.
Furthermore, if the company doesn’t grow and the current level of earnings remains
constant, the P/E can be interpreted as the number of years it will take for the
company to pay back the amount paid for each share.
P/E = Stock Price Per Share / Earnings Per Share
4. Sponsors share holding percentage: A sponsor can refer to a range of individuals or
entities that support the goals and objectives of some other individual or organization.
Sponsors, for instance, invest in private companies, create demand for publicly traded
securities, underwrite mutual fund shares for public offerings, issue exchange-traded
funds (ETFs), or offer platforms for benefits, and so on. Sponsors may also lend their
name and reputation to influence the adoption of a movement, platform, or brand for
benefits.

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5. Net Asset value (NAV): Net asset value (NAV) is defined as the value of a fund’s
assets minus the value of its liabilities. The term “net asset value” is commonly used
in relation to mutual funds and is used to determine the value of the assets held.
According to the SEC, mutual funds and Unit Investment Trusts (UITs) are required
to calculate their NAV at least once every business day.
NAV= Net Asset/Number of Outstanding Share

6. Cash Dividend: A cash dividend is the distribution of funds or money paid to

stockholders generally as part of the corporation's current earnings or accumulated
profits. Cash dividends are paid directly in money, as opposed to being paid as a
stock dividend or other form of value.

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 Chapter 03

Security Analysis & Ranking The Company:

At present, there are 22 industrials sectors in DSE and total listed companies are 611. Among the
22 industrials sectors I have analyzed 3 sectors to make ranking portfolio by considering 6
fundamental tools. The names of sectors are Pharmaceutical’s, Bank & Cement. I am taking data
based on trading 30 July 2021.

Sector 1

Bank

I am selected 3 Banks from Banking sector and then ranked them by consideration of the factor
of fundamental tools.

S.N Company Current EPS P/E ratio( Sponsors Cash NAV Rank
Name Share Basic Using basic Share Dividend per
Price (Half EPS Based Holding share
Yearly) on Audited percentage
Financial
Statement
1 Eastern 2
Bank Ltd 37.5 2.56 7.28 28.33 17.50% 36.28
2 Mutual 3
Trust
Bank 21.9 1.08 16.72 42.33 5% 23.03
3 Jamuna 1
Bank 22.7 2.64 6.41 48.52 17.50% 32.06

Analyze the ranking:

The ranking is analyzed as follows.

Rank-1: I would like to give rank 1 is Jamuna Bank Ltd, because it has comparatively lower P/E
ratio among other companies, Higher EPS, Larger Sponsors Share Holding percentage.

Rank-2: I would like to give rank 2 is Eastern Bank Ltd, because it has higher current market
price of share, as well as higher Net Asset Value.

Rank-3: I would like to give rank 3 Mutual Trust Bank, because it has lower current share price,
lower EPS, Higher P/E ratio, lower cash dividend and lower NAV.

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 Sector 02

Cement

I am selected 3 Cements from cement industry and then ranked them by consideration of the
factor of fundamental tools.

S.N Company Current EPS P/E ratio( Sponsors Cash NAV Rank
Name Share Basic Using Share Dividend per
Price (Half basic EPS Holding share
Yearly) Based on percentage
Audited
Financial
Statement
1 LafargeHolcim 10% 3
Bangladesh 67.5 1.85 33.25 64.68 14.89
2 Crown 10% 2
Cement(MI) 85.8 2.03 13.6 67.08 46.38
3 Premier 10% 1
Cement 87.1 2.51 34.16 47.34 49.74

Analyze the ranking:

The ranking is analyzed as follows.

Rank-1: I would like to give rank 1 is Premier Cement, because it has higher current market
price of share, Higher EPS, it has as well as higher Net Asset Value. .

Rank-2: I would like to give rank 2 is Crown Cement(MI), because it has comparatively lower
P/E ratio among other companies, Larger Sponsors Share Holding percentage.

Rank-3: I would like to give rank 3 LafargeHolcim Bangladesh, because it has lower current
share price, lower EPS, lower NAV.

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 Sector 03

Pharmaceuticals

I am selected 3 Pharmaceuticals from Pharmaceuticals industry and then ranked them by

consideration of the factor of fundamental tools.

S.N Company Current EPS P/E ratio( Sponsors Cash NAV Rank
Name Share Basic Using Share Dividend per
Price (Half basic EPS Holding share
Yearly) Based on percentage
Audited
Financial
Statement
1 ACI 290.6 3.19 61.57 35.38 80% 137.67 1
Pharmaceuticals
Ltd
2 IBN SINA 260.1 2.79 17.86 44.51 38.50% 56.88 3
Pharmaceuticals
Ltd
3 Square 230.7 4.47 14.58 34.57 47% 91.57 2
Pharmaceuticals
Ltd

Analyze the ranking:

The ranking is analyzed as follows.

Rank-1: I would like to give rank 1 is ACI Pharmaceuticals Ltd, because it has higher current
market price of share, , it has as well as higher Net Asset Value, Higher Cash dividend.

Rank-2: I would like to give rank 2 is Square Pharmaceuticals Ltd,because it has comparatively
lower P/E ratio among other companies, Higher EPS.

Rank-3: I would like to give rank 3 IBN SINA Pharmaceuticals Ltd, because it has lower EPS,
lower cash dividend and lower NAV.

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Portfolio formatting

From the sector wise company ranking, we have taken first three ranking companies from the
Bank, Cement and Pharmaceutical sector. I have assumed that I will invest 5,00,0000Tk. In Six
companies to make profit by diversified portfolio. The total amount has been distributed
according to my own choice. Therefore, the weight, share price, number of share and total
amount are given as following table:

1 Jamuna Bank Ltd. 14% 22.7 30837 700,000 Tk

2 Eastern Bank Ltd 10% 37.5 13333 500,000 Tk
3 Premier Cement 22% 87.1 12629 11,00,000 Tk
4 Crown Cement(MI) 18% 85.8 10490 900,000Tk
5 ACI Pharmaceuticals Ltd 20% 290.6 3441 10,00,000Tk
6 Square Pharmaceuticals Ltd 16% 230.7 3468 800,000 Tk
Total 100% 5,00,0000Tk.

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Recommendation for Security Analysis and Portfolio Formation

After analyzing different securities for portfolio formation, we can recommend the following
issues:

1. The lower P/E ratio of the security should be considered when ranking the company's security.
If the P/E ratio is more than 25 the security of the company should not take for ranking.

2. The other factor, price should be considered to rank the security. The lower current price
should be considered.

3. In the share holding pattern, if there is no sponsor shareholding percentage, the security of the
company should not consider.

4. I should consider the higher EPS, higher cash dividend and analyzing security for portfolio
formation.

5. No one should invest only one sector though the performance of the fundamental analysis of
the security is positive. I should diversify the investment in different sectors to reduce risk.

Conclusion

The portfolio is mainly done to reduce the risk. My present market has faced a huge crash
recently. So investing in this share market may seem insane. But by doing fundamental analysis
we have shown in my assignment that my selected shares are attractive to invest. All financial
indicators are giving green sign to invest in those shares. So by hoping the best I am introducing
this portfolio which will be highly monitored and highly analyzed. If the market is steady and the
industry where we are investing is good I will be able to generate higher return.

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