Are Southern Urals Nickel Plant PJSC's (MCX:UNKL) Statutory Earnings A Good Guide To Its Underlying Profitability?

By
Simply Wall St
Published
January 19, 2021
MISX:UNKL
Source: Shutterstock

Statistically speaking, it is less risky to invest in profitable companies than in unprofitable ones. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. Today we'll focus on whether this year's statutory profits are a good guide to understanding Southern Urals Nickel Plant PJSC (MCX:UNKL).

While Southern Urals Nickel Plant PJSC was able to generate revenue of ₽105.0m in the last twelve months, we think its profit result of ₽324.6m was more important. Even though revenue has remained steady over the last three years, you can see in the chart below that the company has moved from loss-making to profitable.

See our latest analysis for Southern Urals Nickel Plant PJSC

earnings-and-revenue-history
MISX:UNKL Earnings and Revenue History January 20th 2021

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. This article, will discuss how unusual items and a spike in non operating revenue have impacted Southern Urals Nickel Plant PJSC's most recent results. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Southern Urals Nickel Plant PJSC.

The Power Of Non-Operating Revenue

Companies will classify their revenue streams as either operating revenue or other revenue. Generally speaking, operating revenue is a more reliable guide to the sustainable revenue generating capacity of the business. Importantly, the non-operating revenue often comes without associated ongoing costs, so it can boost profit by letting it fall straight to the bottom line, making the operating business seem better than it really is. Notably, Southern Urals Nickel Plant PJSC had a significant increase in non-operating revenue over the last year. Indeed, its non-operating revenue spiked from ₽202.9m last year to ₽105.0m this year. The high levels of non-operating are problematic because if (and when) they do not repeat, then overall revenue (and profitability) of the firm will fall. In order to better understand a company's profit result, it can sometimes help to consider whether the result would be very different without a sudden increase in non-operating revenue.

The Impact Of Unusual Items On Profit

Alongside that spike in non-operating revenue, it's also important to note that Southern Urals Nickel Plant PJSC'sprofit suffered from unusual items, which reduced profit by ₽35m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Southern Urals Nickel Plant PJSC to produce a higher profit next year, all else being equal.

Our Take On Southern Urals Nickel Plant PJSC's Profit Performance

In its last report Southern Urals Nickel Plant PJSC benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. But on the other hand, it also saw an unusual item depress its profit, suggesting the statutory profit number will actually improve next year, if the unusual expenses are not repeated, and all else stays equal. Having considered these factors, we don't think Southern Urals Nickel Plant PJSC's statutory profits give an overly harsh view of the business. If you want to do dive deeper into Southern Urals Nickel Plant PJSC, you'd also look into what risks it is currently facing. To that end, you should learn about the 4 warning signs we've spotted with Southern Urals Nickel Plant PJSC (including 1 which doesn't sit too well with us).

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. 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. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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