For today, we decided to present you with a DuPont analysis of Slovenian companies, a useful technique used to decompose the different drivers of ROE.
The DuPont analysis is a useful technique used to decompose the different drivers of ROE. This model allows analysts and investors to examine the profitability of a company using information from both the income statement as well as the balance sheet, which gives them a thorough view of a company’s financial health and operating efficiency. Note that for this analysis we used (trailing 12m) H1 2020 results.
Return on Equity of Slovenian Companies (%)*
*using trailing 12m net profit (H1 2020)
Speaking in broad terms the equation allows analysts to dissect a company, and to efficiently determine where the company is weak and where it is strong. This allows them to quickly know what areas of business to look at (inventory management, debt structure, margins) for more answers. However, the measure is still broad and is not a substitute for detailed analysis.
DuPont tells us that ROE is affected by three things:
- Operating efficiency, which is measured by profit margin
- Asset use efficiency, which is measured by total asset turnover
- Financial leverage, which is measured by the equity multiplier
Of 8 observed companies, 6 companies recorded a double-digit ROE, with Krka leading the list (14.8%). The company also operates with the highest profit margin of 17.2%. As a reminder, Krka showed a very strong performance in H1, with net profit increasing by 15% YoY. Next comes Sava Re, with a ROE of 14.4%. Besides Krka, Sava Re is the only company which observed a net profit increase in H1 2020 (+43%), which mostly came on the back of the consolidation of Vita. The company has also been recording a very solid ROAE in the past 5 years, which on average amounted to 12.1%.
The company which most efficiently uses its assets to generate revenues is Petrol with asset turnover of 1.81. The company also recorded the highest equity multiplier of 2.14.
On the flip side, the only company with a negative ROE is Telekom Slovenije, which has recorded a trailing 12m net loss, when taking into account 1H 2020 results. As a reminder, in 2019, the company reported a net profit of EUR 1.2m (-96%), which came on the back of a lower net financial result. To be specific, the net financial result could be attributed to two key reasons. The first one is that in 2018, finance income from the equity holdings was higher due to the sale of Blicnet, while the second one is that in 2019 other finance expenses include a loss of EUR 17.6m on the acquisition of a 34% minority interest in Planet TV (former Antenna TV SL), claimed on the basis of an arbitration award in the proceedings between Telekom Slovenije and Antenna TV SL Slovenia B.V.
