Yahoo Finance Declining Stock and Solid Fundamentals: Is The Market Wrong About Briscoe Group Limited (NZSE:BGP)?
With its stock down 7.5% over the past three months, it is easy to disregard Briscoe Group (NZSE:BGP). But if you pay close attention, you might gather that its strong financials could mean that the stock could potentially see an increase in value in the long-term, given how markets usually reward companies with good financial health. In this article, we decided to focus on Briscoe Group's ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
Check out our latest analysis for Briscoe Group
How Is ROE Calculated?
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Briscoe Group is:
27% = NZ$84m ÷ NZ$316m (Based on the trailing twelve months to January 2024).
The 'return' refers to a company's earnings over the last year. That means that for every NZ$1 worth of shareholders' equity, the company generated NZ$0.27 in profit.
What Has ROE Got To Do With Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
Briscoe Group's Earnings Growth And 27% ROE
To begin with, Briscoe Group has a pretty high ROE which is interesting. Additionally, the company's ROE is higher compared to the industry average of 12% which is quite remarkable. This probably laid the groundwork for Briscoe Group's moderate 8.3% net income growth seen over the past five years.
As a next step, we compared Briscoe Group's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 2.3%.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is BGP fairly valued? This infographic on the company's intrinsic value has everything you need to know.
Is Briscoe Group Using Its Retained Earnings Effectively?
The high three-year median payout ratio of 70% (or a retention ratio of 30%) for Briscoe Group suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.
Additionally, Briscoe Group has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 78% of its profits over the next three years. As a result, Briscoe Group's ROE is not expected to change by much either, which we inferred from the analyst estimate of 24% for future ROE.
Conclusion
In total, we are pretty happy with Briscoe Group's performance. Especially the high ROE, Which has contributed to the impressive growth seen in earnings. Despite the company reinvesting only a small portion of its profits, it still has managed to grow its earnings so that is appreciable. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
