Are Robust Financials Driving The Recent Rally In Takaful Emarat - Insurance (PSC)'s (DFM:TAKAFUL-EM) Stock?

Most readers would already be aware that Takaful Emarat - Insurance (PSC)'s (DFM:TAKAFUL-EM) stock increased significantly by 42% over the past three months. Since the market usually pay for a company’s long-term fundamentals, we decided to study the company’s key performance indicators to see if they could be influencing the market. Particularly, we will be paying attention to Takaful Emarat - Insurance (PSC)'s ROE today.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Takaful Emarat - Insurance (PSC) is:

20% = د.إ34m ÷ د.إ172m (Based on the trailing twelve months to June 2025).

The 'return' is the yearly profit. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.20 in profit.

See our latest analysis for Takaful Emarat - Insurance (PSC)

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. 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. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

A Side By Side comparison of Takaful Emarat - Insurance (PSC)'s Earnings Growth And 20% ROE

On the face of it, Takaful Emarat - Insurance (PSC)'s ROE is not much to talk about. However, the fact that the its ROE is quite higher to the industry average of 13% doesn't go unnoticed by us. This probably goes some way in explaining Takaful Emarat - Insurance (PSC)'s moderate 6.1% growth over the past five years amongst other factors. Bear in mind, the company does have a moderately low ROE. It is just that the industry ROE is lower. So there might well be other reasons for the earnings to grow. Such as- high earnings retention or the company belonging to a high growth industry.

As a next step, we compared Takaful Emarat - Insurance (PSC)'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 2.9%.

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. One good indicator of expected earnings growth is the P/E ratio which determines the price the market is willing to pay for a stock based on its earnings prospects. So, you may want to check if Takaful Emarat - Insurance (PSC) is trading on a high P/E or a low P/E, relative to its industry.

Is Takaful Emarat - Insurance (PSC) Using Its Retained Earnings Effectively?

Takaful Emarat - Insurance (PSC) doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

Summary

On the whole, we feel that Takaful Emarat - Insurance (PSC)'s performance has been quite good. Specifically, we like that it has been reinvesting a high portion of its profits at a moderate rate of return, resulting in earnings expansion. If the company continues to grow its earnings the way it has, that could have a positive impact on its share price given how earnings per share influence long-term share prices. Let's not forget, business risk is also one of the factors that affects the price of the stock. So this is also an important area that investors need to pay attention to before making a decision on any business. Our risks dashboard would have the 2 risks we have identified for Takaful Emarat - Insurance (PSC).

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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.