The Singapore Telecommunications (SGX:Z74) share price has increased by 2.6% in the past three months. As most people know, long-term fundamentals have a strong correlation with market price movements, so today we’ll take a look at the company’s key financial metrics and see if they play any role in the recent price movement. I decided to decide whether it was working or not. Specifically, we decided to examine Singapore Telecommunications’ ROE in this article.
Return on equity or ROE is a key measure used to evaluate how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to evaluate a company’s profitability compared to its equity.
Check out our latest analysis for Singapore Telecommunications.
How is ROE calculated?
of Calculation formula for return on equity teeth:
Return on equity = Net income (from continuing operations) ÷ Shareholders’ equity
So, based on the above formula, the ROE for Singapore Telecommunications is:
12% = S$3.2 billion ÷ S$27 billion (based on trailing 12 months to September 2023).
“Return” refers to a company’s earnings over the past year. This means that for every S$1 worth of shareholders’ equity, the company generated S$0.12 of his profit.
Why is ROE important for profit growth?
So far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits a 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, companies with high return on equity and profit retention will have higher growth rates than companies without these attributes.
Singapore Telecom’s revenue growth and ROE 12%
First, Singapore Telecom’s ROE looks acceptable. Moreover, his ROE for the company is in line with the industry average of 13%. However, his ROE for Singapore Telecommunications is quite good, but his five-year net income decline rate was 2.8%. Based on this, we feel that there may be other reasons hindering the company’s growth that have not been discussed so far in this article. For example, the company may have a high payout ratio or the business may have misallocated capital.
However, when we compare Singapore Telecom’s growth with the industry, we find that the company’s revenue has been shrinking, while the industry has grown its revenue at 13% over the same period. This is very worrying.
Earnings growth is an important metric to consider when evaluating a stock. It’s important for investors to know whether the market is pricing in a company’s expected earnings growth (or decline). Doing so will help you determine whether a stock’s future is promising or ominous. What is Z74 worth today? Our free research report’s intrinsic value infographic helps you visualize whether Z74 is currently mispriced on the market.
Are Singapore telecoms reinvesting profits efficiently?
With a high three-year median payout ratio of 79% (meaning 21% of profits are retained), most of Singapore Telecom’s profits are paid out to shareholders, which explains the company’s shrinking earnings. It has become. Since only a small amount is reinvested into the business, earnings growth will obviously be low or non-existent. The risks dashboard shows the three risks he has identified for Singapore Communications.
Furthermore, Singapore Telecommunications has been paying dividends for at least a decade, suggesting that management must have known that shareholders wanted dividends more than profit growth. After reviewing the latest analyst consensus data, we found that the company is expected to continue paying out around 79% of its profit over the next three years. Therefore, the company’s future ROE is not expected to change much, with analysts forecasting it to be 10%.
summary
Overall, we feel that Singapore Telecommunications has some positive attributes. However, although the company has a high ROE, its profit growth rate is very disappointing. This is likely because it only reinvests a small portion of its profits and pays out the rest as dividends. Furthermore, we examined the latest analyst forecasts and found that the company’s revenue is expected to continue shrinking. To know more about the latest analyst forecasts 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 using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.