It's been a good week for Sims Limited (ASX:SGM) shareholders, because the company has just released its latest half-yearly results, and the shares gained 2.1% to AU$10.95. Revenues were in line with forecasts, at AU$2.7b, although statutory earnings per share came in 11% below what analysts expected, at AU$0.74 per share. Earnings are an important time for investors, as they can track a company's performance, look at what top analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Sims after the latest results.
Following the recent earnings report, the consensus fromnine analysts covering Sims expects revenues of AU$5.63b in 2020, implying a measurable 6.6% decline in sales compared to the last 12 months. Losses are predicted to fall substantially, shrinking 22% (on a statutory basis) to AU$0.09. In the lead-up to this report, analysts had been modelling revenues of AU$5.29b and earnings per share (EPS) of AU$0.057 in 2020. While they've upgraded their revenue forecasts for next year, the analyst consensus also expects losses to increase, perhaps due to the investments required to grow revenue. In any event, it's not clear that these new estimates are particularly bullish.
The consensus price target stayed unchanged at AU$10.48, seeming to suggest that higher forecast losses are not expected to have a long term impact on the valuation. 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. The most optimistic Sims analyst has a price target of AU$12.10 per share, while the most pessimistic values it at AU$9.40. Still, with such a tight range of estimates, it suggests analysts have a pretty good idea of what they think the company is worth.
In addition, we can look to Sims's past performance and see whether business is expected to improve, and if the company is expected to perform better than wider market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 6.6% a significant reduction from annual growth of 3.4% over the last five years. Compare this with our data, which suggests that other companies in the same market are, in aggregate, expected to see their revenue grow 1.2% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - analysts also expect Sims to grow slower than the wider market.
The Bottom Line
The biggest low-light for us was that the forecasts for Sims dropped from profits to a loss next year. Fortunately, analysts also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider market. The consensus price target held steady at AU$10.48, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Sims. Long-term earnings power is much more important than next year's profits. We have forecasts for Sims going out to 2024, and you can see them free on our platform here.
We also provide an overview of the Sims Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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