Eléctrica Puntilla's (SNSE:PUNTILLA) Solid Earnings May Rest On Weak Foundations

By
Simply Wall St
Published
September 04, 2021
SNSE:PUNTILLA
Source: Shutterstock

Eléctrica Puntilla S.A.'s (SNSE:PUNTILLA) robust recent earnings didn't do much to move the stock. However the statutory profit number doesn't tell the whole story, and we have found some factors which might be of concern to shareholders.

Check out our latest analysis for Eléctrica Puntilla

earnings-and-revenue-history
SNSE:PUNTILLA Earnings and Revenue History September 5th 2021

An Unusual Tax Situation

We can see that Eléctrica Puntilla received a tax benefit of CL$463m. This is meaningful because companies usually pay tax rather than receive tax benefits. Of course, prima facie it's great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Eléctrica Puntilla.

Our Take On Eléctrica Puntilla's Profit Performance

As we have already discussed Eléctrica Puntilla reported that it received a tax benefit, rather than paying tax, in the last year. As a result we don't think its profit result, which includes that tax-boost, is a good guide to its sustainable profit levels. Because of this, we think that it may be that Eléctrica Puntilla's statutory profits are better than its underlying earnings power. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. Just as investors must consider earnings, it is also important to take into account the strength of a company's balance sheet. We've done some analysis and you can see our take on Eléctrica Puntilla's balance sheet by clicking here.

This note has only looked at a single factor that sheds light on the nature of Eléctrica Puntilla's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. 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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