At the moment (7 March), Simply Group (LSE:JUST), the FTSE 250 monetary companies supplier, launched its 2024 outcomes. And regardless of reporting a big enhance in revenue, traders reacted badly.

Evaluating 2024 with 2023, the outcomes present a 34% enhance in underlying revenue to £504m, a 36% rise in retirement gross sales, and an enchancment within the return on capital. Because of this, the administrators have been in a position to announce a 20% enhance within the dividend.

At first look, the shares look like a cut price. Underlying earnings per share was 36p, implying a price-to-earnings (P/E) ratio of solely 4.

Summarising the efficiency, the group’s chief government commented: “We made a pledge three years ago to double profits over five years. We have significantly exceeded that target in just three years and created substantial shareholder value as a result.”

So why did the corporate’s shares fall a lot at this time? At one level they have been down 15% earlier than recovering barely.

Completely different requirements

I think it has one thing to do with the group’s use of different efficiency measures. These can produce completely different outcomes to the statutory ones utilized by accountants, as laid down by monetary reporting requirements.

A take a look at the corporate’s accounts reveals that the reported revenue after tax was £80m. This was £49m (38%) decrease than for 2023. And really completely different to its underlying revenue of £504m.

Primary earnings per share for 2024 have been 6.5p. Utilizing this measure, the shares have a P/E ratio of round 23. Once more, that is miles away from the headline quantity.

To assist traders perceive the variation in these figures, a reconciliation is supplied.

The majority of the distinction is defined by the “deferral of profit in CSM” (£369m), which is excluded from underlying earnings. This refers back to the Contractual Service Margin reserve, a bucket into which earnings are deferred and reported at a later date.

Accounting requirements require the revenue from new enterprise to be mirrored over the lifetime of the contract. In distinction, when reporting its headline numbers, the corporate prefers to incorporate it .

In fact, there’s nothing fallacious with both strategy. The administrators aren’t hiding something, they’re simply selecting a special methodology to interpret its outcomes.

What does this all imply?

For my part, this makes it tough for traders to know the numbers.

Nevertheless, one factor that by no means lies is money. It both exists or it doesn’t. Throughout 2024, the group reported a big enhance within the money generated from its working actions. Total, money balances elevated by 54%.

In addition to this, for my part, there are different causes to think about investing within the group. It’s rising quickly and the corporate describes market situations as “buoyant”. As well as, with a Solvency II capital protection ratio of 204%, its stability sheet stays strong.

However there are dangers.

Annuity gross sales might gradual if rates of interest fall as anticipated. And the group operates in a really aggressive market that’s delicate to wider financial situations. Additionally, there are higher revenue shares round.

On stability, I’m nonetheless undecided. Due to this fact, I’m going to proceed monitoring the corporate’s efficiency — contemplating each various and statutory measures — over the approaching months, with a view to revisiting the funding case later within the 12 months.