Weak financial outlook appears to drive shares of integrated telecom company Emirates PJSC (DFM:DU) down

It’s hard to get excited after watching the recent performance of Emirates Integrated Telecommunications Company PJSC (DFM:DU), as its stock has fallen 2.6% over the past month. Since stock prices are usually influenced by a company’s long-term fundamentals, which in this case seem quite weak, we decided to study the company’s key financial indicators. In particular, we will pay attention today to the ROE of Emirates Integrated Telecommunications Company PJSC.

Return on equity or ROE is an important factor for a shareholder to consider as it tells them how much of their capital is being reinvested. In short, ROE shows the profit that each dollar generates in relation to the investments of its shareholders.

Check out our latest analysis for Emirates Integrated Telecommunications Company PJSC

How do you calculate return on equity?

the ROE formula is:

Return on equity = Net income (from continuing operations) ÷ Equity

So, based on the above formula, the ROE for Emirates Integrated Telecommunications Company PJSC is:

10% = د.إ829m ÷ د.إ8.2b (Based on the last twelve months to September 2021).

The “yield” is the amount earned after tax over the last twelve months. This means that for every AED1 of equity, the company generated a profit of AED 0.10.

Why is ROE important for earnings growth?

We have already established that ROE serves as an effective profit-generating indicator for a company’s future earnings. We now need to assess how much profit the company is reinvesting or “retaining” for future growth, which then gives us an idea of ​​the company’s growth potential. Assuming all else is equal, companies that have both a higher return on equity and better earnings retention are generally the ones with a higher growth rate compared to companies that don’t. same characteristics.

10% profit growth and ROE of integrated telecommunications company Emirates PJSC

As you can see, the ROE of Emirates Integrated Telecommunications Company PJSC seems quite weak. An industry comparison shows that the company’s ROE is also not much different from the industry average of 12%. Therefore, it may not be wrong to say that the 6.3% drop in net income over five years observed by Emirates Integrated Telecommunications Company PJSC was possibly the result of a disappointing ROE.

That being said, we compared the performance of Emirates Integrated Telecommunications Company PJSC with the industry and were concerned when we found that while the company had reduced profits, the industry had increased profits at a rate of 12 % over the same period.

DFM:DU Past Earnings Growth February 3, 2022

Earnings growth is an important factor in stock valuation. What investors then need to determine is whether the expected earnings growth, or lack thereof, is already priced into the stock price. This will help them determine if the future of the title looks bright or ominous. Has the market priced in the future prospects for depleted uranium? You can find out in our latest infographic research report on intrinsic value.

Is the integrated telecommunications company Emirates PJSC using its retained earnings efficiently?

With a high three-year median payout ratio of 93% (implying that 6.7% of profits are retained), most of the profits of Emirates Integrated Telecommunications Company PJSC are paid out to shareholders, which explains the decline in company profits. The company has only a small pool of capital left to reinvest – A vicious cycle that does not benefit the company in the long term. To know the 2 risks we have identified for Emirates Integrated Telecommunications Company PJSC, visit our risk dashboard for free.

Additionally, Emirates Integrated Telecommunications Company PJSC has paid dividends over a period of at least ten years, suggesting that maintaining dividend payments is far more important to management, even if it comes at the expense of growth. of the company. After reviewing the latest consensus data from analysts, we found that the company is expected to continue to pay out approximately 89% of its earnings over the next three years. Either way, Emirates Integrated Telecommunications Company PJSC’s future ROE is expected to reach 15% despite little change expected in its payout ratio.

Summary

All in all, we would find it hard to think before deciding on any investment action regarding Emirates Integrated Telecommunications Company PJSC. The low ROE, combined with the fact that the company pays out almost all, if not all, of its earnings in the form of dividends, has resulted in little or no earnings growth. That being the case, the latest forecasts from industry analysts show that analysts are expecting a huge improvement in the company’s earnings growth rate. Are these analyst expectations based on general industry expectations or company fundamentals? Click here to access our analyst forecast page for the company.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Sean B. Jackson