Derwent London Plc (LON:DLN): Set To Experience A Decrease In Earnings?

In December 2018, Derwent London Plc (LON:DLN) released its earnings update. Generally, the consensus outlook from analysts appear pessimistic, with earnings expected to decline by 5.4% in the upcoming year. However, compared to its 5-year track record of the average earnings growth rate of -25%, this is still an improvement. With trailing-twelve-month net income at current levels of UK£222m, the consensus growth rate suggests that earnings will decline to UK£210m by 2020. In this article, I've outline a few earnings growth rates to give you a sense of the market sentiment for Derwent London in the longer term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

View our latest analysis for Derwent London

Can we expect Derwent London to keep growing?

The longer term view from the 9 analysts covering DLN is one of positive sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I've plotted out each year's earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of DLN's earnings growth over these next few years.

By 2022, DLN's earnings should reach UK£296m, from current levels of UK£222m, resulting in an annual growth rate of 13%. This leads to an EPS of £2.66 in the final year of projections relative to the current EPS of £1.99. Margins are currently sitting at 97%, which is expected to expand to 126% by 2022.

Next Steps:

Future outlook is only one aspect when you're building an investment case for a stock. For Derwent London, I've compiled three essential factors you should look at:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Valuation: What is Derwent London worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Derwent London is currently mispriced by the market.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Derwent London? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.