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Medios AG's (ETR:ILM1) earnings announcement last week didn't impress shareholders. However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.
View our latest analysis for Medios
In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Medios expanded the number of shares on issue by 7.2% over the last year. As a result, its net income is now split between a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. You can see a chart of Medios' EPS by clicking here.
How Is Dilution Impacting Medios' Earnings Per Share (EPS)?
As you can see above, Medios has been growing its net income over the last few years, with an annualized gain of 16% over three years. But on the other hand, earnings per share actually fell by 10% per year. Net income was down 32% over the last twelve months. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 33%. Therefore, the dilution is having a noteworthy influence on shareholder returns.
In the long term, if Medios' earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
The Impact Of Unusual Items On Profit
Alongside that dilution, it's also important to note that Medios' profit suffered from unusual items, which reduced profit by €5.0m in the last twelve months. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Medios doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
Our Take On Medios' Profit Performance
To sum it all up, Medios took a hit from unusual items which pushed its profit down; without that, it would have made more money. But unfortunately the dilution means that shareholders now own a smaller proportion of the company (assuming they maintained the same number of shares). That will weigh on earnings per share, even if it is not reflected in net income. Given the contrasting considerations, we don't have a strong view as to whether Medios's profits are an apt reflection of its underlying potential for profit. If you want to do dive deeper into Medios, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 2 warning signs for Medios you should know about.