November 29, 2021

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See What The Consensus Is Forecasting For Next Year

It’s been a sad week for The New Zealand Refining Company Limited (NZSE:NZR), who’ve watched their investment drop 18% to NZ$1.22 in the week since the company reported its full-year result. Revenues of NZ$348m reported a marginal miss, falling short of forecasts by 3.0%, but earnings were better than expected – statutory profits came in at NZ$0.013 per share, a nice change from the loss analysts expected. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. We thought readers would find it interesting to see analysts’ latest (statutory) post-earnings forecasts for next year.

View our latest analysis for New Zealand Refining

NZSE:NZR Past and Future Earnings, February 28th 2020

Taking into account the latest results, the current consensus, from the three analysts covering New Zealand Refining, is for revenues of NZ$312.7m in 2020, which would reflect an uncomfortable 10% reduction in New Zealand Refining’s sales over the past 12 months. Earnings are expected to tip over into lossmaking territory, with analysts forecasting statutory losses of -NZ$0.12 per share in 2020. Yet prior to the latest earnings, analysts had been forecasting revenues of NZ$361.3m and earnings per share (EPS) of NZ$0.042 in 2020. There looks to have been a major change in sentiment regarding New Zealand Refining’s prospects following the latest results, with a substantial drop in to revenues and analysts now forecasting a loss instead of a profit.

The consensus price target fell 20% to NZ$1.70, with analysts clearly concerned about the company following the weaker revenue and earnings outlook. That’s not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. There are some variant perceptions on New Zealand Refining, with the most bullish analyst valuing it at NZ$1.98 and the most bearish at NZ$1.40 per share. This shows there is still quite a bit of diversity in estimates, but analysts don’t appear to be totally split on the stock as though it might be a success or failure situation.

Another way to assess these estimates is by comparing them to past performance, and seeing whether analysts are more or less bullish relative to other companies in the market. These estimates imply that sales are expected to slow, with a forecast revenue decline of 10% a significant reduction from annual growth of 1.9% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 4.1% annually for the foreseeable future. It’s pretty clear that New Zealand Refining’s revenues are expected to perform substantially worse than the wider market.

The Bottom Line

The most important thing to take away is that analysts are expecting New Zealand Refining to become unprofitable next year. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider market. Analysts also downgraded their price target, suggesting that the latest news has led analysts to become more pessimistic about the intrinsic value of the business.

With that in mind, we wouldn’t be too quick to come to a conclusion on New Zealand Refining. Long-term earnings power is much more important than next year’s profits. We have forecasts for New Zealand Refining going out to 2023, and you can see them free on our platform here.

It might also be worth considering whether New Zealand Refining’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.

If you spot an error that warrants correction, please contact the editor at [email protected] This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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