Southern Sun (JSE:SSU) Is Posting Promising Earnings But The Good News Doesn’t Stop There

Investors signalled that they were pleased with Southern Sun Limited's (JSE:SSU) most recent earnings report. According to our analysis of the report, the strong headline profit numbers are supported by strong earnings fundamentals.

Check out our latest analysis for Southern Sun

How Do Unusual Items Influence Profit?

To properly understand Southern Sun's profit results, we need to consider the R395m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Southern Sun to produce a higher profit next year, all else being equal.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Southern Sun.

Our Take On Southern Sun's Profit Performance

Because unusual items detracted from Southern Sun's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that Southern Sun's statutory profit actually understates its earnings potential! And the EPS is up 71% over the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Southern Sun at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Southern Sun.

Today we've zoomed in on a single data point to better understand the nature of Southern Sun's profit. 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. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.