ANY Biztonsági Nyomda Nyrt.'s (BUSE:ANY) Has Performed Well But Fundamentals Look Varied: Is There A Clear Direction For The Stock?

By
Simply Wall St
Published
May 16, 2021
BUSE:ANY
Source: Shutterstock

ANY Biztonsági Nyomda Nyrt's (BUSE:ANY) stock is up by 1.5% over the past week. However, we decided to study the company's mixed-bag of fundamentals to assess what this could mean for future share prices, as stock prices tend to be aligned with a company's long-term financial performance. Specifically, we decided to study ANY Biztonsági Nyomda Nyrt's ROE in this article.

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. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

Check out our latest analysis for ANY Biztonsági Nyomda Nyrt

How Do You Calculate Return On Equity?

The formula for return on equity is:

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

So, based on the above formula, the ROE for ANY Biztonsági Nyomda Nyrt is:

12% = Ft1.0b ÷ Ft8.5b (Based on the trailing twelve months to December 2020).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each HUF1 of shareholders' capital it has, the company made HUF0.12 in profit.

Why Is ROE Important For 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 all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

ANY Biztonsági Nyomda Nyrt's Earnings Growth And 12% ROE

At first glance, ANY Biztonsági Nyomda Nyrt seems to have a decent ROE. Further, the company's ROE is similar to the industry average of 11%. However, while ANY Biztonsági Nyomda Nyrt has a pretty respectable ROE, its five year net income decline rate was 6.0% . Based on this, we feel that there might be other reasons which haven't been discussed so far in this article that could be hampering the company's growth. Such as, the company pays out a huge portion of its earnings as dividends, or is faced with competitive pressures.

However, when we compared ANY Biztonsági Nyomda Nyrt's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 8.6% in the same period. This is quite worrisome.

past-earnings-growth
BUSE:ANY Past Earnings Growth May 17th 2021

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. This then helps them determine if the stock is placed for a bright or bleak future. Is ANY fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is ANY Biztonsági Nyomda Nyrt Using Its Retained Earnings Effectively?

With a high three-year median payout ratio of 100% (implying that 0.009% of the profits are retained), most of ANY Biztonsági Nyomda Nyrt's profits are being paid to shareholders, which explains the company's shrinking earnings. The business is only left with a small pool of capital to reinvest - A vicious cycle that doesn't benefit the company in the long-run. To know the 5 risks we have identified for ANY Biztonsági Nyomda Nyrt visit our risks dashboard for free.

In addition, ANY Biztonsági Nyomda Nyrt has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 108%. Still, forecasts suggest that ANY Biztonsági Nyomda Nyrt's future ROE will rise to 21% even though the the company's payout ratio is not expected to change by much.

Conclusion

On the whole, we feel that the performance shown by ANY Biztonsági Nyomda Nyrt can be open to many interpretations. In spite of the high ROE, the company has failed to see growth in its earnings due to it paying out most of its profits as dividend, with almost nothing left to invest into its own business. So far, we've only made a quick discussion around the company's earnings growth. To gain further insights into ANY Biztonsági Nyomda Nyrt's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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