It's been a good week for Shougang Fushan Resources Group Limited (HKG:639) shareholders, because the company has just released its latest full-year results, and the shares gained 6.0% to HK$1.41. Revenues of HK$3.9b were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at HK$0.22, missing estimates by 2.8%. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Shougang Fushan Resources Group after the latest results.
Taking into account the latest results, Shougang Fushan Resources Group's four analysts currently expect revenues in 2020 to be HK$3.81b, approximately in line with the last 12 months. Statutory earnings per share are forecast to decrease 4.7% to HK$0.20 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of HK$4.10b and earnings per share (EPS) of HK$0.22 in 2020. The analysts are less bullish than they were before these results, given the reduced revenue forecasts and the minor downgrade to earnings per share expectations.
It'll come as no surprise then, to learn thatthe analysts have cut their price target 7.0% to HK$2.06. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Shougang Fushan Resources Group analyst has a price target of HK$2.10 per share, while the most pessimistic values it at HK$2.00. With such a narrow range of valuations, the analysts apparently share similar views on what they think the business is worth.
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. These estimates imply that sales are expected to slow, with a forecast revenue decline of 1.6%, a significant reduction from annual growth of 12% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.5% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Shougang Fushan Resources Group is expected to lag the wider industry.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
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 forecasts for Shougang Fushan Resources Group going out to 2022, 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 Shougang Fushan Resources Group (1 is concerning!) that we have uncovered.
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