It's shaping up to be a tough period for SPT Energy Group Inc. (HKG:1251), which a week ago released some disappointing annual results that could have a notable impact on how the market views the stock. SPT Energy Group missed analyst forecasts, with revenues of CN¥1.9b and statutory earnings per share (EPS) of CN¥0.11, falling short by 7.0% and 6.2% respectively. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
Taking into account the latest results, the four analysts covering SPT Energy Group provided consensus estimates of CN¥1.44b revenue in 2020, which would reflect a concerning 26% decline on its sales over the past 12 months. Per-share earnings are expected to shoot up 60% to CN¥0.17. Before this earnings report, the analysts had been forecasting revenues of CN¥2.61b and earnings per share (EPS) of CN¥0.15 in 2020. So there's been quite a change-up of views after the latest results, with the analysts making a serious cut to their revenue forecasts while also granting a solid gain to to the earnings per share numbers.
The analysts have cut their price target 7.9% to CN¥0.70 per share, suggesting that the declining revenue was a more crucial indicator than the expected improvement in earnings. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values SPT Energy Group at CN¥1.08 per share, while the most bearish prices it at CN¥0.27. So we wouldn't be assigning too much credibility to analyst price targets in this case, because there are clearly some widely different views on what kind of performance this business can generate. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the SPT Energy Group's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 26%, a significant reduction from annual growth of 2.3% 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 5.1% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - SPT Energy Group is expected to lag the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around SPT Energy Group's earnings potential next year. Unfortunately, they also downgraded their revenue estimates, and our data indicates revenues are expected to perform worse than the wider industry. Even so, earnings per share are more important to the intrinsic value of the business. Even so, long term profitability is more important for the value creation process. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of SPT Energy Group's future valuation.
With that in mind, we wouldn't be too quick to come to a conclusion on SPT Energy Group. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple SPT Energy Group analysts - going out to 2022, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 4 warning signs for SPT Energy Group (1 makes us a bit uncomfortable!) that you need to be mindful of.
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