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Serica Energy plc ( LON:SQZ ) shareholders will have a reason to smile today, with the analysts making substantial upgrades to this year's statutory forecasts. The analysts greatly increased their revenue estimates, suggesting a stark improvement in business fundamentals. Investor sentiment seems to be improving too, with the share price up 6.4% to UK£1.50 over the past 7 days. Could this big upgrade push the stock even higher?
After the upgrade, the four analysts covering Serica Energy are now predicting revenues of UK£278m in 2021. If met, this would reflect a major 121% improvement in sales compared to the last 12 months. Per-share earnings are expected to bounce 907% to UK£0.29. Previously, the analysts had been modelling revenues of UK£241m and earnings per share (EPS) of UK£0.23 in 2021. So we can see there's been a pretty clear increase in analyst sentiment in recent times, with both revenues and earnings per share receiving a decent lift in the latest estimates.
View our latest analysis for Serica Energy
With these upgrades, we're not surprised to see that the analysts have lifted their price target 7.5% to UK£1.83 per share. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Serica Energy analyst has a price target of UK£2.05 per share, while the most pessimistic values it at UK£1.51. This is a very narrow spread of estimates, implying either that Serica Energy is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.
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. The analysts are definitely expecting Serica Energy's growth to accelerate, with the forecast 121% annualised growth to the end of 2021 ranking favourably alongside historical growth of 51% per annum over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 1.7% per year. Factoring in the forecast acceleration in revenue, it's pretty clear that Serica Energy is expected to grow much faster than its industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. They also upgraded their revenue estimates for this year, and sales are expected to grow faster than the wider market. Given that the consensus looks almost universally bullish, with a substantial increase to forecasts and a higher price target, Serica Energy could be worth investigating further.