Where was the EPS uplift?

Most of the top-down analysis of the ASX's August reporting season has focused on the surprises and changes in expectations for the S&P/ASX 200. But most of the real action, of course, could be found among stocks that don't have large enough free float market caps to make it in to this key index.

Trying to make sense of the numbers and possibly identify an opportunity or two, we've run the numbers on changes in the consensus expectations among analysts for Earnings Per Share (EPS), using Thomson Reuters data.

Starting where everyone else starts, we count 134 stocks that over the last month experienced upward revisions in EPS expectations for fiscal 2018, compared to 232 downward revisions. The weighted average revision over the last month for the largest 200 stocks (weighted by market capitalisation) was -0.2%.

BUT much of the bad news was pre-warned - the weighted average decline over the past TWO months was -2.4%!

Smaller stocks suffered larger negative revisions. Stocks ranked 200-400 were downgraded 8.25% on a simple average but there were some large outliers in that group, led by Mt Gibson Iron (MGX), with EPS expectations slashed by 533%.

For a tempered view, the median (the mid-point) of these "second" 200 stocks was a -0.41% cut to fiscal 2018 EPS expectations over the last month, compared to a median of -0.31% for the top 200.

In aggregate the smaller stocks were mediocre. If you wanted to find a strong positive surprise, smaller stocks were the only place to look. The top 20 positive changes to consensus EPS expectations over the past two months were all for stocks ranked outside the top 70 by market cap. Only two of the top 20 had market caps greater than a billion dollars.

Below are the 20 stocks that experienced the greatest increase in consensus EPS expectations over the two previous months, according to our analysis of Thomson Reuters data.


CodeCompanyMarket Cap ($)EPS chg
NEU Neuren Pharmaceuticals Ltd 119,207,178.30 605%
ANR Anatara Lifesciences Ltd 64,978,405.34 367%
CGS CogState Ltd 125,044,532.80 74%
MAI MainstreamBPO Ltd 56,318,223.00 37%
PRT Prime Media Group Ltd 163,016,984.84 33%
NWH NRW Holdings Ltd 381,894,460.62 32%
ADH Adairs Ltd 242,177,186.10 29%
BSE Base Resources Ltd 204,113,787.90 25%
RDH Redhill Education Ltd 45,736,468.52 25%
BAL Bellamy's Australia Ltd 879,465,644.97 22%
ZNT Zenitas Healthcare Ltd 56,026,056.62 20%
DOW Downer EDI Ltd 4,133,182,458.40 20%
MOY Millennium Minerals Ltd 136,660,487.08 18%
SMX SMS Management & Technology Ltd 122,680,048.60 16%
HUO Huon Aquaculture Group Ltd 437,559,407.07 16%
FWD Fleetwood Corp Ltd 184,949,418.36 16%
FID Fiducian Group Ltd 134,436,782.40 14%
VAH Virgin Australia Holdings Ltd 1,607,042,669.85 13%
DRM Doray Minerals Ltd 83,916,058.35 12%
AMI Aurelia Metals Ltd 88,325,928.54 12%

Its an interesting table but in isolation doesn't mean much (the top two stocks, NEU and ANR, are both life science stocks clearly priced on something other than fiscal 2018 earnings forecasts, with NEU's 2018 earnings featuring one-off payments not expected to be repeated the following year) . The next step is to identify which of these stocks are worth doing more work on, verifying the rationale of these upgrades, the sustainability of the earnings uplift and whether the market has priced in the changes.

Equitable Investors Pty Ltd is a Corporate Authorised Representative (No. 001256627) and Martin Pretty is an Authorised Representative (No. 001256674) of Glennon Capital Pty Ltd (AFSL No. 338567)

Popular posts from this blog

Ten Thousand Words - September 2018

Big Un's new set of accounts show Cash Flows ain't Cash Flows

Getting Industrial - 5 year returns

Disclaimer

Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.

The content of this blog should not be relied upon in making investment decisions.Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information.

This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary.

Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components.Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog.