Solid profit numbers didn’t seem to be enough to please Brimstone Investment Corporation Limited’s (JSE:BRT) shareholders. Our analysis suggests they may be concerned about some underlying details.
Most companies divide classify their revenue as either ‘operating revenue’, which comes from normal operations, and other revenue, which could include government grants, for example. Where possible, we prefer rely on operating revenue to get a better understanding of how the business is functioning. However, we note that when non-operating revenue increases suddenly, it will sometimes generate an unsustainable boost to profit. It’s worth noting that Brimstone Investment saw a big increase in non-operating revenue as a proportion of total revenue over the last year. In fact, our data indicates that non-operating revenue ratio increased from 1.1% to 8.0%. If that non-operating revenue fails to manifest in the current year, then there’s a real risk the bottom line profit result will be impacted negatively. Sometimes, you can get a better idea of the underlying earnings potential of a company by excluding unusual boosts to non-operating revenue.
Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Brimstone Investment.
As well as that spike in non-operating revenue, we should also consider the R97m boost to profit coming from unusual items, over the last year. We can’t deny that higher profits generally leave us optimistic, but we’d prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that’s exactly what the accounting terminology implies. Brimstone Investment had a rather significant contribution from unusual items relative to its profit to June 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.
In its last report Brimstone Investment benefitted from a spike in non-operating revenue which may have boosted its profit in a way that may be no more sustainable than low quality coal mining. Furthermore, unusual items also made a nice positive contribution to its profit, which may well drop next year (all else being equal) if these phenomena are not repeated. For the reasons mentioned above, we think that a perfunctory glance at Brimstone Investment’s statutory profits might make it look better than it really is on an underlying level. In light of this, if you’d like to do more analysis on the company, it’s vital to be informed of the risks involved. To that end, you…
Read More: There Are Some Reasons To Suggest That Brimstone Investment’s (JSE:BRT)
