Market forces rained on the parade of BRC Asia Limited (SGX:BEC) shareholders today, when the analysts downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting analysts have soured majorly on the business.
After the downgrade, the consensus from BRC Asia's dual analysts is for revenues of S$820m in 2020, which would reflect an uncomfortable 9.2% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to nosedive 33% to S$0.12 in the same period. Prior to this update, the analysts had been forecasting revenues of S$913m and earnings per share (EPS) of S$0.15 in 2020. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a considerable drop in earnings per share numbers as well.
The consensus price target fell 7.2% to S$1.60, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values BRC Asia at S$1.65 per share, while the most bearish prices it at S$1.55. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting BRC Asia is an easy business to forecast or the underlying assumptions are obvious.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 9.2% revenue decline a notable change from historical growth of 24% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - BRC Asia is expected to lag the wider industry.
The Bottom Line
The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for BRC Asia. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that BRC Asia's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of BRC Asia.
A high debt burden combined with a downgrade of this magnitude always gives us some reason for concern, especially if these forecasts are just the first sign of a business downturn. To see more of our financial analysis, you can click through to our free platform to learn more about its balance sheet and specific concerns we've identified.
Another thing to consider is whether management and directors have been buying or selling stock recently. We provide an overview of all open market stock trades for the last twelve months on our platform, here.
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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. 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. Thank you for reading.