Sembcorp Industries Ltd (SGX:U96) last week reported its latest third-quarter results, which makes it a good time for investors to dive in and see if the business is performing in line with expectations. Results were mixed, with revenues of S$2.5b exceeding expectations, even as earnings per share (EPS) fell badly short. Earnings were S$0.035 per share, -30% short of analyst expectations. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. So we gathered the latest post-earnings forecasts to see what analysts are forecasting for next year.
Following last week's earnings report, Sembcorp Industries's 13 analysts are forecasting 2020 revenues to be S$9.93b, approximately in line with the last 12 months. Earnings per share are expected to soar 37% to S$0.25. In the lead-up to this report, analysts had been modelling revenues of S$9.92b and earnings per share (EPS) of S$0.26 in 2020. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at S$2.71, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Sembcorp Industries, with the most bullish analyst valuing it at S$3.41 and the most bearish at S$2.07 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Sembcorp Industries shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. We would highlight that Sembcorp Industries's revenue growth is expected to slow, with forecast 0.7% increase next year well below the historical 1.0%p.a. growth over the last five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 5.3% per year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Sembcorp Industries.
The Bottom Line
The biggest highlight of the new consensus is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Sembcorp Industries. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Still, the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Sembcorp Industries going out to 2021, and you can see them free on our platform here..
It might also be worth considering whether Sembcorp Industries's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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