Are UnipolSai Assicurazioni S.p.A.'s (BIT:US) Mixed Financials The Reason For Its Gloomy Performance on The Stock Market?
It is hard to get excited after looking at UnipolSai Assicurazioni's (BIT:US) recent performance, when its stock has declined 6.5% over the past month. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study UnipolSai Assicurazioni'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. Put another way, it reveals the company's success at turning shareholder investments into profits.
View our latest analysis for UnipolSai Assicurazioni
How To Calculate Return On Equity?
ROE 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 UnipolSai Assicurazioni is:
11% = €651m ÷ €5.8b (Based on the trailing twelve months to December 2022).
The 'return' is the yearly profit. That means that for every €1 worth of shareholders' equity, the company generated €0.11 in profit.
Why Is ROE Important For Earnings Growth?
Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.
UnipolSai Assicurazioni's Earnings Growth And 11% ROE
To start with, UnipolSai Assicurazioni's ROE looks acceptable. Yet, the fact that the company's ROE is lower than the industry average of 15% does temper our expectations. Moreover, UnipolSai Assicurazioni's net income shrunk at a rate of 3.0%over the past five years. Not to forget, the company does have a high ROE to begin with, just that it is lower than the industry average. Hence there might be some other aspects that are causing earnings to shrink. For example, it could be that the company has a high payout ratio or the business has allocated capital poorly, for instance.
However, when we compared UnipolSai Assicurazioni's growth with the industry we found that while the company's earnings have been shrinking, the industry has seen an earnings growth of 6.3% in the same period. This is quite worrisome.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is US worth today? The intrinsic value infographic in our free research report helps visualize whether US is currently mispriced by the market.
Is UnipolSai Assicurazioni Efficiently Re-investing Its Profits?
With a high three-year median payout ratio of 68% (implying that 32% of the profits are retained), most of UnipolSai Assicurazioni'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.
In addition, UnipolSai Assicurazioni has been paying dividends over a period of nine years suggesting that keeping up dividend payments is preferred by the management even though earnings have been in decline. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 64%. As a result, UnipolSai Assicurazioni's ROE is not expected to change by much either, which we inferred from the analyst estimate of 11% for future ROE.
Overall, we have mixed feelings about UnipolSai Assicurazioni. Primarily, we are disappointed to see a lack of growth in earnings even in spite of a moderate ROE. Bear in mind, the company reinvests a small portion of its profits, which explains the lack of growth. Having said that, looking at current analyst estimates, we found that the company's earnings growth rate is expected to see a huge improvement. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts 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.
UnipolSai Assicurazioni S.p.A. operates as an insurance company in Italy.
Good value with adequate balance sheet and pays a dividend.