Things Look Grim For MGB Berhad (KLSE:MGB) After Today's Downgrade

Today is shaping up negative for MGB Berhad (KLSE:MGB) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analysts have soured majorly on the business.

Following the downgrade, the current consensus from MGB Berhad's dual analysts is for revenues of RM859m in 2022 which - if met - would reflect a sizeable 40% increase on its sales over the past 12 months. Statutory earnings per share are presumed to swell 17% to RM0.04. Previously, the analysts had been modelling revenues of RM1.0b and earnings per share (EPS) of RM0.06 in 2022. Indeed, we can see that the analysts are a lot more bearish about MGB Berhad's prospects, administering a measurable cut to revenue estimates and slashing their EPS estimates to boot.

View our latest analysis for MGB Berhad

It'll come as no surprise then, to learn that the analysts have cut their price target 13% to RM0.64. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values MGB Berhad at RM0.67 per share, while the most bearish prices it at RM0.61. This is a very narrow spread of estimates, implying either that MGB Berhad is an easy company to value, or - more likely - the analysts are relying heavily on some key 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. One thing stands out from these estimates, which is that MGB Berhad is forecast to grow faster in the future than it has in the past, with revenues expected to display 40% annualised growth until the end of 2022. If achieved, this would be a much better result than the 2.0% 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 13% annually. Not only are MGB Berhad's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for MGB Berhad. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. With a serious cut to this year's expectations and a falling price target, we wouldn't be surprised if investors were becoming wary of MGB Berhad.

Still, the long-term prospects of the business are much more relevant than next year's earnings. At least one analyst has provided forecasts out to 2024, which can be seen for free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.