When analyzing a mature business that has moved past its growth phase, it’s important to identify the underlying trends. In the case of Emirates Integrated Telecommunications Company PJSC (DFM:DU), there are two concerning trends: a declining return on capital employed (ROCE) and a declining base of capital employed.
ROCE measures the pre-tax profit a company generates from its capital employed. For Emirates Integrated Telecommunications Company PJSC, the ROCE is calculated as follows: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities). Based on the trailing twelve months to June 2023, the company has an ROCE of 14%, which is better than the Telecom industry average of 11%.
However, when looking at the trend, the returns on capital have decreased from 28% five years ago. The company is also using a similar amount of capital as it was back then. These trends indicate that while the company may not be shrinking, it is facing pressure on margins from competition. This doesn’t suggest significant growth potential for Emirates Integrated Telecommunications Company PJSC.
Although the stock has delivered a 34% return to shareholders over the past five years, we remain cautious about the future. If the downward trend continues, there may be better investment opportunities elsewhere.
It’s worth noting that there is one warning sign facing Emirates Integrated Telecommunications Company PJSC. We recommend further research and analysis before making any investment decisions.