Declining Stock and Solid Fundamentals: Is The Market Wrong About Delfi Limited (SGX:P34)?

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16-05-2025

It is hard to get excited after looking at Delfi's (SGX:P34) recent performance, when its stock has declined 4.7% over the past three months. However, stock prices are usually driven by a company's financial performance over the long term, which in this case looks quite promising. Particularly, we will be paying attention to Delfi's ROE today.
Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. Put another way, it reveals the company's success at turning shareholder investments into profits.
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Return on equity 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 Delfi is:
13% = US$34m ÷ US$265m (Based on the trailing twelve months to December 2024).
The 'return' is the yearly profit. So, this means that for every SGD1 of its shareholder's investments, the company generates a profit of SGD0.13.
View our latest analysis for Delfi
So far, we've learned that ROE is a measure of a company's profitability. 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. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
To begin with, Delfi seems to have a respectable ROE. On comparing with the average industry ROE of 8.2% the company's ROE looks pretty remarkable. This certainly adds some context to Delfi's decent 16% net income growth seen over the past five years.
As a next step, we compared Delfi'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 13%.
Earnings growth is a huge factor in stock valuation. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. Doing so will help them establish if the stock's future looks promising or ominous. What is P34 worth today? The intrinsic value infographic in our free research report helps visualize whether P34 is currently mispriced by the market.
Delfi has a healthy combination of a moderate three-year median payout ratio of 50% (or a retention ratio of 50%) and a respectable amount of growth in earnings as we saw above, meaning that the company has been making efficient use of its profits.
Additionally, Delfi has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 53%. As a result, Delfi's ROE is not expected to change by much either, which we inferred from the analyst estimate of 12% for future ROE.
On the whole, we feel that Delfi's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
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