Is The Market Rewarding Begbies Traynor Group plc (LON:BEG) With A Negative Sentiment As A Result Of Its Mixed Fundamentals?

editorial-team@simplywallst.com (Simply Wall St)

Sun, Mar 2, 2025, 10:13 PM 4 min read

Begbies Traynor Group (LON:BEG) has had a rough week with its share price down 4.2%. We, however decided to study the company's financials to determine if they have got anything to do with the price decline. Long-term fundamentals are usually what drive market outcomes, so it's worth paying close attention. Specifically, we decided to study Begbies Traynor Group's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

See our latest analysis for Begbies Traynor Group

How Is ROE Calculated?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Begbies Traynor Group is:

3.2% = UK£2.5m ÷ UK£76m (Based on the trailing twelve months to October 2024).

The 'return' is the profit over the last twelve months. That means that for every £1 worth of shareholders' equity, the company generated £0.03 in profit.

What Has ROE Got To Do With Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. 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.

Begbies Traynor Group's Earnings Growth And 3.2% ROE

It is quite clear that Begbies Traynor Group's ROE is rather low. Even when compared to the industry average of 11%, the ROE figure is pretty disappointing. However, the moderate 16% net income growth seen by Begbies Traynor Group over the past five years is definitely a positive. We believe that there might be other aspects that are positively influencing the company's earnings growth. Such as - high earnings retention or an efficient management in place.

As a next step, we compared Begbies Traynor Group'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 9.6%.

past-earnings-growth — AIM:BEG Past Earnings Growth March 3rd 2025

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). This then helps them determine if the stock is placed for a bright or bleak future. What is BEG worth today? The intrinsic value infographic in our free research report helps visualize whether BEG is currently mispriced by the market.

Is Begbies Traynor Group Making Efficient Use Of Its Profits?

The really high three-year median payout ratio of 329% for Begbies Traynor Group suggests that the company is paying its shareholders more than what it is earning. However, this hasn't really hampered its ability to grow as we saw earlier. That being said, the high payout ratio could be worth keeping an eye on in case the company is unable to keep up its current growth momentum. You can see the 2 risks we have identified for Begbies Traynor Group by visiting our risks dashboard for free on our platform here.

Besides, Begbies Traynor Group has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company is expected to drop to 40% over the next three years. The fact that the company's ROE is expected to rise to 25% over the same period is explained by the drop in the payout ratio.

Summary

Overall, we have mixed feelings about Begbies Traynor Group. While no doubt its earnings growth is pretty substantial, its ROE and earnings retention is quite poor. So while the company has managed to grow its earnings in spite of this, we are unconvinced if this growth could extend, especially during troubled times. With that said, the latest industry analyst forecasts reveal that the company's earnings are expected to accelerate. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.

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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.