Investors in Pacific Basin Shipping Limited (HKG:2343) had a good week, as its shares rose 4.4% to close at HK$2.38 following the release of its yearly results. Statutory earnings per share fell badly short of expectations, coming in at US$0.021, some 22% below analyst forecasts, although revenues were okay, approximately in line with analyst estimates at US$2.3b. Following the result, the 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 the analysts latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the most recent consensus for Pacific Basin Shipping from six analysts is for revenues of US$2.35b in 2024. If met, it would imply a satisfactory 2.4% increase on its revenue over the past 12 months. Statutory earnings per share are predicted to soar 50% to US$0.031. Before this earnings report, the analysts had been forecasting revenues of US$2.49b and earnings per share (EPS) of US$0.035 in 2024. The analysts seem less optimistic after the recent results, reducing their revenue forecasts and making a substantial drop in earnings per share numbers.
Despite the cuts to forecast earnings, there was no real change to the HK$2.93 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. 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 Pacific Basin Shipping analyst has a price target of HK$3.30 per share, while the most pessimistic values it at HK$2.60. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn't rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It's pretty clear that there is an expectation that Pacific Basin Shipping's revenue growth will slow down substantially, with revenues to the end of 2024 expected to display 2.4% growth on an annualised basis. This is compared to a historical growth rate of 17% over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue shrink 6.7% per year. Factoring in the forecast slowdown in growth, it's pretty clear that Pacific Basin Shipping is still expected to grow faster than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Pacific Basin Shipping. Sadly they also cut their revenue estimates, although at least the company is expected to perform a bit better than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Pacific Basin Shipping. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Pacific Basin Shipping analysts - going out to 2026, and you can see them free on our platform here.
However, before you get too enthused, we've discovered 2 warning signs for Pacific Basin Shipping that you should be aware of.
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