Stock Analysis

Abu Dhabi National Energy Company PJSC (ADX:TAQA) Shareholders Will Want The ROCE Trajectory To Continue

ADX:TAQA
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Abu Dhabi National Energy Company PJSC (ADX:TAQA) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Abu Dhabi National Energy Company PJSC:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.072 = د.إ11b ÷ (د.إ180b - د.إ29b) (Based on the trailing twelve months to September 2022).

Thus, Abu Dhabi National Energy Company PJSC has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Integrated Utilities industry average of 4.8%.

View our latest analysis for Abu Dhabi National Energy Company PJSC

roce
ADX:TAQA Return on Capital Employed February 15th 2023

In the above chart we have measured Abu Dhabi National Energy Company PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Abu Dhabi National Energy Company PJSC here for free.

What Does the ROCE Trend For Abu Dhabi National Energy Company PJSC Tell Us?

Abu Dhabi National Energy Company PJSC's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 257% over the last two years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Abu Dhabi National Energy Company PJSC's ROCE

In summary, we're delighted to see that Abu Dhabi National Energy Company PJSC has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 164% total return over the last year tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Abu Dhabi National Energy Company PJSC can keep these trends up, it could have a bright future ahead.

Like most companies, Abu Dhabi National Energy Company PJSC does come with some risks, and we've found 1 warning sign that you should be aware of.

While Abu Dhabi National Energy Company PJSC may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're helping make it simple.

Find out whether Abu Dhabi National Energy Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.