Stock Analysis

Is There More To The Story Than MNF Group's (ASX:MNF) Earnings Growth?

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ASX:SYM
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It might be old fashioned, but we really like to invest in companies that make a profit, each and every year. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing MNF Group (ASX:MNF).

We like the fact that MNF Group made a profit of AU$12.0m on its revenue of AU$229.5m, in the last year. One positive is that it has grown both its profit and its revenue, over the last few years.

Check out our latest analysis for MNF Group

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ASX:MNF Earnings and Revenue History August 19th 2020

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we will consider how MNF Group's decision to issue new shares in the company has impacted returns to shareholders. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, MNF Group increased the number of shares on issue by 15% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of MNF Group's EPS by clicking here.

How Is Dilution Impacting MNF Group's Earnings Per Share? (EPS)

MNF Group has improved its profit over the last three years, with an annualized gain of 22% in that time. In comparison, earnings per share only gained 9.9% over the same period. And at a glance the 36% gain in profit over the last year impresses. On the other hand, earnings per share are only up 32% in that time. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if MNF Group can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

Our Take On MNF Group's Profit Performance

Each MNF Group share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that MNF Group's statutory profits are better than its underlying earnings power. But at least holders can take some solace from the 9.9% per annum growth in EPS for the last three. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into MNF Group, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of MNF Group.

Today we've zoomed in on a single data point to better understand the nature of MNF Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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