Hong Kong Exchanges and Clearing Limited (HKG:388) just released its latest quarterly report and things are not looking great. It wasn't a great result overall - while revenue fell marginally short of analyst estimates at HK$4.0b, statutory earnings missed forecasts by 18%, coming in at just HK$1.80 per share. The 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. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
After the latest results, the 15 analysts covering Hong Kong Exchanges and Clearing are now predicting revenues of HK$17.5b in 2020. If met, this would reflect a decent 9.6% improvement in sales compared to the last 12 months. Per-share earnings are expected to step up 14% to HK$8.18. Yet prior to the latest earnings, the analysts had been anticipated revenues of HK$17.9b and earnings per share (EPS) of HK$8.52 in 2020. It's pretty clear that pessimism has reared its head after the latest results, leading to a weaker revenue outlook and a minor downgrade to earnings per share estimates.
The analysts made no major changes to their price target of HK$284, suggesting the downgrades are not expected to have a long-term impact on Hong Kong Exchanges and Clearing'svaluation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Hong Kong Exchanges and Clearing at HK$317 per share, while the most bearish prices it at HK$240. Even so, with a relatively close grouping of analyst estimates, it looks to us as though the analysts are quite confident in their valuations, suggesting that Hong Kong Exchanges and Clearing is an easy business to forecast or that the the analysts are all using similar assumptions.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. Next year brings more of the same, according to the analysts, with revenue forecast to grow 9.6%, in line with its 8.5% annual growth over the past five years. Juxtapose this against our data, which suggests that other companies (with analyst coverage) in the industry are forecast to see their revenues grow 10.0% per year. So although Hong Kong Exchanges and Clearing is expected to maintain its revenue growth rate, it's only growing at about the rate of the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Hong Kong Exchanges and Clearing. Sadly, they also downgraded their sales forecasts, but the business is still expected to grow at roughly the same rate as the industry itself. The consensus price target held steady at HK$284, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on Hong Kong Exchanges and Clearing. Long-term earnings power is much more important than next year's profits. We have forecasts for Hong Kong Exchanges and Clearing going out to 2022, and you can see them free on our platform here.
Even so, be aware that Hong Kong Exchanges and Clearing is showing 1 warning sign in our investment analysis , you should know about...
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