Declining Stock and Decent Financials: Is The Market Wrong About TECOM Group PJSC (DFM:TECOM)?

It is hard to get excited after looking at TECOM Group PJSC's (DFM:TECOM) recent performance, when its stock has declined 4.9% over the past week. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study TECOM Group PJSC's ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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How To Calculate Return On Equity?

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 TECOM Group PJSC is:

20% = د.إ1.4b ÷ د.إ7.0b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each AED1 of shareholders' capital it has, the company made AED0.20 in profit.

Check out our latest analysis for TECOM Group PJSC

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. 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.

TECOM Group PJSC's Earnings Growth And 20% ROE

At first glance, TECOM Group PJSC's ROE doesn't look very promising. Although a closer study shows that the company's ROE is higher than the industry average of 11% which we definitely can't overlook. Even more so after seeing TECOM Group PJSC's exceptional 22% net income growth over the past five years. That being said, the company does have a slightly low ROE to begin with, just that it is higher than the industry average. Therefore, the growth in earnings could also be the result of other factors. Such as- high earnings retention or the company belonging to a high growth industry.

We then compared TECOM Group PJSC's net income growth with the industry and found that the company's growth figure is lower than the average industry growth rate of 33% in the same 5-year period, which is a bit concerning.

Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Has the market priced in the future outlook for TECOM? You can find out in our latest intrinsic value infographic research report.

Is TECOM Group PJSC Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 65% (implying that it keeps only 35% of profits) for TECOM Group PJSC suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Besides, TECOM Group PJSC has been paying dividends over a period of three years. This shows that the company is committed to sharing profits with its shareholders. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 66% of its profits over the next three years. As a result, TECOM Group PJSC's ROE is not expected to change by much either, which we inferred from the analyst estimate of 20% for future ROE.

Conclusion

Overall, we feel that TECOM Group PJSC certainly does have some positive factors to consider. Its earnings have grown respectably as we saw earlier, which was likely achieved by the company reinvesting its earnings at a decent rate of return. Still, its earnings retention is quite low, so we wonder if the company's growth could be higher, were it to pay out less dividends and retain more of its profits? Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.