U.S. Markets open in 1 hr 32 mins

The Scottish Investment Trust PLC (LON:SCIN): Should The Recent Earnings Drop Worry You?

Kelly Murphy

Assessing The Scottish Investment Trust PLC’s (LSE:SCIN) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess SCIN’s recent performance announced on 31 October 2017 and evaluate these figures to its longer term trend and industry movements. Check out our latest analysis for Scottish Investment Trust

Despite a decline, did SCIN underperform the long-term trend and the industry?

To account for any quarterly or half-yearly updates, I use data from the most recent 12 months, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method allows me to examine different companies on a similar basis, using new information. For Scottish Investment Trust, its latest earnings (trailing twelve month) is UK£65.81M, which, in comparison to the prior year’s level, has fallen by a large -66.03%. Given that these values may be somewhat short-term thinking, I’ve computed an annualized five-year value for Scottish Investment Trust’s earnings, which stands at UK£68.01M This doesn’t look much better, since earnings seem to have consistently been declining over the longer term.

LSE:SCIN Income Statement Mar 28th 18

Why is this? Well, let’s look at what’s going on with margins and if the entire industry is facing the same headwind. Over the past few years, revenue growth has failed to keep up which implies that Scottish Investment Trust’s bottom line has been propelled by unmaintainable cost-reductions. Viewing growth from a sector-level, the UK capital markets industry has been growing its average earnings by double-digit 22.59% over the prior year, and 15.34% over the past five. This suggests that whatever uplift the industry is deriving benefit from, Scottish Investment Trust has not been able to reap as much as its average peer.

What does this mean?

While past data is useful, it doesn’t tell the whole story. Usually companies that endure a drawn out period of diminishing earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry growth and disruption. You should continue to research Scottish Investment Trust to get a better picture of the stock by looking at:

  • 1. Financial Health: Is SCIN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  • 2. Valuation: What is SCIN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SCIN is currently mispriced by the market.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 October 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.