Earnings Miss: Smartgroup Corporation Ltd Missed EPS By 7.3% And Analysts Are Revising Their Forecasts

Simply Wall St

Investors in Smartgroup Corporation Ltd (ASX:SIQ) had a good week, as its shares rose 4.4% to close at AU$7.34 following the release of its full-year results. Revenues of AU$250m were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at AU$0.48, missing estimates by 7.3%. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.

View our latest analysis for Smartgroup

ASX:SIQ Past and Future Earnings, February 23rd 2020

Taking into account the latest results, Smartgroup's five analysts currently expect revenues in 2020 to be AU$251.4m, approximately in line with the last 12 months. Statutory per share are forecast to be AU$0.48, approximately in line with the last 12 months. Yet prior to the latest earnings, analysts had been forecasting revenues of AU$256.5m and earnings per share (EPS) of AU$0.52 in 2020. Analysts seem to have become a little more negative on the business after the latest results, given the minor downgrade to their earnings per share forecasts for next year.

It might be a surprise to learn that the consensus price target fell 5.0% to AU$8.01, with analysts clearly linking lower forecast earnings to the performance of the stock price. The consensus price target just an average of individual analyst targets, so - considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. The most optimistic Smartgroup analyst has a price target of AU$8.70 per share, while the most pessimistic values it at AU$7.25. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.

It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Smartgroup's past performance and to peers in the same market. It's pretty clear that analysts expect Smartgroup's revenue growth will slow down substantially, with revenues next year expected to grow 0.6%, compared to a historical growth rate of 25% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 4.7% next year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Smartgroup to grow slower than the wider market.

The Bottom Line

The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Smartgroup. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Smartgroup analysts - going out to 2022, and you can see them free on our platform here.

It might also be worth considering whether Smartgroup's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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