It's been a good week for Forterra plc (LON:FORT) shareholders, because the company has just released its latest half-yearly results, and the shares gained 9.3% to UK£1.86. Forterra reported in line with analyst predictions, delivering revenues of UK£122m and statutory earnings per share of UK£0.24, suggesting the business is executing well and in line with its plan. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
After the latest results, the consensus from Forterra's nine analysts is for revenues of UK£273.2m in 2020, which would reflect a chunky 12% decline in sales compared to the last year of performance. The statutory loss per share is expected to greatly reduce in the near future, narrowing 1,329% to UK£0.029. Before this earnings report, the analysts had been forecasting revenues of UK£264.0m and earnings per share (EPS) of UK£0.0078 in 2020. While they've upgraded their revenue numbers for next year, the 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 UK£2.23, seeming to suggest that higher forecast losses are not expected to have a long term impact on the valuation. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on Forterra, with the most bullish analyst valuing it at UK£2.50 and the most bearish at UK£1.94 per share. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Forterra is an easy business to forecast or the the analysts are all using similar assumptions.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 12% revenue decline a notable change from historical growth of 3.2% over the last three years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 5.8% annually for the foreseeable future. It's pretty clear that Forterra's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analysts are expecting Forterra to become unprofitable next year. Fortunately, they also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Forterra. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Forterra analysts - going out to 2023, and you can see them free on our platform here.
Before you take the next step you should know about the 2 warning signs for Forterra (1 makes us a bit uncomfortable!) that we have uncovered.
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