Spark New Zealand Limited (NZSE:SPK) just released its latest interim results and things are looking bullish. The company beat expectations with revenues of NZ$1.8b arriving 3.3% ahead of forecasts. Statutory earnings per share (EPS) were NZ$0.22, 2.8% ahead of estimates. Analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether analysts have changed their mind on Spark New Zealand after the latest results.
Following last week's earnings report, Spark New Zealand's eight analysts are forecasting 2020 revenues to be NZ$3.60b, approximately in line with the last 12 months. Statutory earnings per share are expected to dip 2.7% to NZ$0.22 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of NZ$3.53b and earnings per share (EPS) of NZ$0.23 in 2020. There doesn't appear to have been a major change in analyst sentiment following the results, other than the small increase to revenue estimates.
Analysts increased their price target 5.4% to NZ$4.46, perhaps signalling that higher revenues are a strong leading indicator for Spark New Zealand's valuation. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Spark New Zealand analyst has a price target of NZ$4.90 per share, while the most pessimistic values it at NZ$4.00. The narrow spread of estimates could suggest that the business' future is relatively easy to value, or that analysts have a clear view on its prospects.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. It's pretty clear that analysts expect Spark New Zealand's revenue growth will slow down substantially, with revenues next year expected to grow 0.009%, compared to a historical growth rate of 0.3% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 0.6% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Spark New Zealand.
The Bottom Line
The most important thing to take away is that there's been no major change in sentiment, with analysts reconfirming that earnings per share are expected to continue performing in line with their prior expectations. They also upgraded their revenue estimates for next year, even though sales are expected to grow slower than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Spark New Zealand going out to 2022, and you can see them free on our platform here.
It might also be worth considering whether Spark New Zealand's debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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