When UBM plc (LSE:UBM) released its most recent earnings update (30 June 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how UBM performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see UBM has performed. See our latest analysis for UBM
Despite a decline, did UBM underperform the long-term trend and the industry?
For the most up-to-date info, I use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This technique enables me to examine different companies in a uniform manner using new information. For UBM, its most recent earnings (trailing twelve month) is £90.1M, which, relative to the previous year’s figure, has declined by -5.26%. Given that these figures may be fairly myopic, I have computed an annualized five-year value for UBM’s earnings, which stands at £90.6M. This doesn’t look much better, since earnings seem to have steadily been declining over the longer term.
What could be happening here? Let’s examine what’s occurring with margins and whether the whole industry is facing the same headwind. In the past couple of years, revenue growth has fallen behind earnings, which suggests that UBM’s bottom line has been propelled by unsustainable cost-cutting. Viewing growth from a sector-level, the UK media industry has been enduring some headwinds over the previous year, leading to an average earnings drop of -6.09%. This is a significant change, given that the industry has been delivering a positive rate of 7.65%, on average, over the past five years. This means that whatever near-term headwind the industry is experiencing, the impact on UBM has been softer relative to its peers.
What does this mean?
Though UBM’s past data is helpful, it is only one aspect of my investment thesis. Generally companies that experience an extended period of reduction in earnings are going through some sort of reinvestment phase . However, if the whole industry is struggling to grow over time, it may be a sign of a structural change, which makes UBM and its peers a riskier investment. I recommend you continue to research UBM to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for UBM’s future growth? Take a look at our free research report of analyst consensus for UBM’s outlook.
2. Financial Health: Is UBM’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.
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 30 June 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.