Here's Why Remgro (JSE:REM) Has Caught The Eye Of Investors
Simply Wall St
4 min read
The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.
In contrast to all that, many investors prefer to focus on companies like Remgro (JSE:REM), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Remgro with the means to add long-term value to shareholders.
How Fast Is Remgro Growing Its Earnings Per Share?
Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. Commendations have to be given in seeing that Remgro grew its EPS from R6.28 to R23.39, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Remgro achieved similar EBIT margins to last year, revenue grew by a solid 16% to R76b. That's progress.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
JSE:REM Earnings and Revenue History January 18th 2023
Are Remgro Insiders Aligned With All Shareholders?
It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Remgro followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Holding R1.4b worth of stock in the company is no laughing matter and insiders will be committed in delivering the best outcomes for shareholders. This would indicate that the goals of shareholders and management are one and the same.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Remgro with market caps between R34b and R109b is about R21m.
Remgro's CEO took home a total compensation package worth R15m in the year leading up to June 2022. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.
Is Remgro Worth Keeping An Eye On?
Remgro's earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Remgro is certainly doing some things right and is well worth investigating. Still, you should learn about the 1 warning sign we've spotted with Remgro.
Although Remgro certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this freelist of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.
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