Revenue Downgrade: Here's What Analysts Forecast For Genworth Mortgage Insurance Australia Limited (ASX:GMA)

Simply Wall St
May 17, 2022
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The latest analyst coverage could presage a bad day for Genworth Mortgage Insurance Australia Limited (ASX:GMA), with the analysts making across-the-board cuts to their statutory estimates that might leave shareholders a little shell-shocked. Revenue estimates were cut sharply as analysts signalled a weaker outlook - perhaps a sign that investors should temper their expectations as well.

Following the downgrade, the latest consensus from Genworth Mortgage Insurance Australia's twin analysts is for revenues of AU$424m in 2022, which would reflect a decent 18% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to be AU$0.49, approximately in line with the last 12 months. Prior to this update, the analysts had been forecasting revenues of AU$476m and earnings per share (EPS) of AU$0.51 in 2022. Indeed we can see that the consensus opinion has undergone some fundamental changes following the recent consensus updates, with a substantial drop in revenues and some minor tweaks to earnings numbers.

Check out our latest analysis for Genworth Mortgage Insurance Australia

ASX:GMA Earnings and Revenue Growth May 17th 2022

The consensus has reconfirmed its price target of AU$3.29, showing that the analysts don't expect weaker sales expectationsthis year to have a material impact on Genworth Mortgage Insurance Australia's market value. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Genworth Mortgage Insurance Australia, with the most bullish analyst valuing it at AU$3.50 and the most bearish at AU$2.90 per share. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Genworth Mortgage Insurance Australia is an easy business to forecast or the underlying assumptions are obvious.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Genworth Mortgage Insurance Australia's past performance and to peers in the same industry. One thing stands out from these estimates, which is that Genworth Mortgage Insurance Australia is forecast to grow faster in the future than it has in the past, with revenues expected to display 18% annualised growth until the end of 2022. If achieved, this would be a much better result than the 7.5% annual decline over the past five years. Compare this against analyst estimates for the broader industry, which suggest that (in aggregate) industry revenues are expected to grow 12% annually. So it looks like Genworth Mortgage Insurance Australia is expected to grow faster than its competitors, at least for a while.

The Bottom Line

The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Genworth Mortgage Insurance Australia after today.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2024, which can be seen for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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