Stock Analysis

Public Joint Stock Company Novorossiysk Commercial Sea Port's (MCX:NMTP) Stock Been Rising: Are Strong Financials Guiding The Market?

MISX:NMTP
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Most readers would already know that Novorossiysk Commercial Sea Port's (MCX:NMTP) stock increased by 4.7% over the past three months. Since the market usually pay for a company’s long-term financial health, we decided to study the company’s fundamentals to see if they could be influencing the market. Particularly, we will be paying attention to Novorossiysk Commercial Sea Port's ROE today.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

View our latest analysis for Novorossiysk Commercial Sea Port

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 Novorossiysk Commercial Sea Port is:

19% = US$192m ÷ US$1.0b (Based on the trailing twelve months to September 2020).

The 'return' is the profit over the last twelve months. Another way to think of that is that for every RUB1 worth of equity, the company was able to earn RUB0.19 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. 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. 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.

Novorossiysk Commercial Sea Port's Earnings Growth And 19% ROE

To start with, Novorossiysk Commercial Sea Port's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 6.8%. This certainly adds some context to Novorossiysk Commercial Sea Port's exceptional 28% net income growth seen over the past five years. We believe that there might also be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Novorossiysk Commercial Sea Port'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 2.8%.

past-earnings-growth
MISX:NMTP Past Earnings Growth February 1st 2021

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). Doing so will help them establish if the stock's future looks promising or ominous. Is NMTP fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Novorossiysk Commercial Sea Port Using Its Retained Earnings Effectively?

The high three-year median payout ratio of 55% (implying that it keeps only 45% of profits) for Novorossiysk Commercial Sea Port suggests that the company's growth wasn't really hampered despite it returning most of the earnings to its shareholders.

Moreover, Novorossiysk Commercial Sea Port is determined to keep sharing its profits with shareholders which we infer from its long history of paying a dividend for at least ten years.

Summary

In total, we are pretty happy with Novorossiysk Commercial Sea Port's performance. In particular, its high ROE is quite noteworthy and also the probable explanation behind its considerable earnings growth. Yet, the company is retaining a small portion of its profits. Which means that the company has been able to grow its earnings in spite of it, so that's not too bad. Until now, we have only just grazed the surface of the company's past performance by looking at the company's fundamentals. To gain further insights into Novorossiysk Commercial Sea Port's past profit growth, check out this visualization of past earnings, revenue and cash flows.

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This article by Simply Wall St is general in nature. 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.
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About MISX:NMTP

Novorossiysk Commercial Sea Port

Public Joint Stock Company Novorossiysk Commercial Sea Port, together with its subsidiaries, provides stevedoring, port, and sea vessel services in Russia.

Excellent balance sheet and fair value.

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