A week ago, Eureka Group Holdings Limited (ASX:EGH) came out with a strong set of half-yearly numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 2.6% to hit AU$14m. Eureka Group Holdings also reported a statutory profit of AU$0.013, which was an impressive 45% above what the analysts had forecast. Following the result, the 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. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Eureka Group Holdings after the latest results.
After the latest results, the two analysts covering Eureka Group Holdings are now predicting revenues of AU$27.5m in 2021. If met, this would reflect an okay 4.3% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to decrease 7.1% to AU$0.024 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of AU$27.5m and earnings per share (EPS) of AU$0.021 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the nice increase in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 14% to AU$0.56.
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 Eureka Group Holdings' revenue growth is expected to slow, with forecast 4.3% increase next year well below the historical 7.2%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 10% per year. Factoring in the forecast slowdown in growth, it seems obvious that Eureka Group Holdings is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Eureka Group Holdings following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Eureka Group Holdings' revenues are expected to perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have analyst estimates for Eureka Group Holdings going out as far as 2023, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 4 warning signs for Eureka Group Holdings you should be aware of, and 2 of them make us uncomfortable.
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