One thing we could say about the analysts on OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.
After the downgrade, the nine analysts covering OneConnect Financial Technology are now predicting revenues of CN¥4.2b in 2021. If met, this would reflect a solid 12% improvement in sales compared to the last 12 months. Losses are forecast to narrow 6.1% to CN¥3.23 per share. Yet prior to the latest estimates, the analysts had been forecasting revenues of CN¥4.8b and losses of CN¥3.12 per share in 2021. So there's been quite a change-up of views after the recent consensus updates, with the analysts making a serious cut to their revenue forecasts while also expecting losses per share to increase.
The consensus price target fell 44% to US$12.69, implicitly signalling that lower earnings per share are a leading indicator for OneConnect Financial Technology's valuation. 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. The most optimistic OneConnect Financial Technology analyst has a price target of US$25.10 per share, while the most pessimistic values it at US$6.00. As you can see the range of estimates is wide, with the lowest valuation coming in at less than half the most bullish estimate, suggesting there are some strongly diverging views on how think this business will perform. As a result it might not be possible to derive much meaning from the consensus price target, which is after all just an average of this wide range of estimates.
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. It's pretty clear that there is an expectation that OneConnect Financial Technology's revenue growth will slow down substantially, with revenues to the end of 2021 expected to display 26% growth on an annualised basis. This is compared to a historical growth rate of 38% over the past year. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 14% annually. Even after the forecast slowdown in growth, it seems obvious that OneConnect Financial Technology is also expected to grow faster than the wider industry.
The Bottom Line
The most important thing to note from this downgrade is that the consensus increased its forecast losses this year, suggesting all may not be well at OneConnect Financial Technology. While analysts did downgrade their revenue estimates, these forecasts still imply revenues will perform better than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Overall, given the drastic downgrade to this year's forecasts, we'd be feeling a little more wary of OneConnect Financial Technology going forwards.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple OneConnect Financial Technology analysts - going out to 2023, and you can see them 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.
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