Hafnia Limited's (OB:HAFNI) Stock's On An Uptrend: Are Strong Financials Guiding The Market?

Most readers would already be aware that Hafnia's (OB:HAFNI) stock increased significantly by 17% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Hafnia's ROE.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How Do You 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 Hafnia is:

19% = US$434m ÷ US$2.3b (Based on the trailing twelve months to June 2025).

The 'return' refers to a company's earnings over the last year. So, this means that for every NOK1 of its shareholder's investments, the company generates a profit of NOK0.19.

Check out our latest analysis for Hafnia

What Has ROE Got To Do With Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Hafnia's Earnings Growth And 19% ROE

To start with, Hafnia's ROE looks acceptable. Especially when compared to the industry average of 14% the company's ROE looks pretty impressive. Probably as a result of this, Hafnia was able to see an impressive net income growth of 37% over the last five years. However, there could also be other causes behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

As a next step, we compared Hafnia's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 22%.

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about Hafnia's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is Hafnia Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 72% (implying that it keeps only 28% of profits) for Hafnia suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Additionally, Hafnia has paid dividends over a period of six years which means that the company is pretty serious about sharing its profits with shareholders. 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 74%. However, Hafnia's future ROE is expected to decline to 15% despite there being not much change anticipated in the company's payout ratio.

Summary

In total, we are pretty happy with Hafnia's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.