Investors expecting mining companies to continue surging for the remainder of the year might want to temper their expectations, according to forecasts from analysts, studied by Brewin Dolphin.
The wealth management firm collated the consensus expectations across FTSE 100 companies to see which had been improved or reduced the most over the past three months.
Rob Burgeman, senior investment manager at Brewin Dolphin, said: “Revenue forecast changes are a useful barometer of the sentiment analysts have towards particular stocks – if revenues are on the rise, it’s typically for positive reasons and vice-versa. Expectation shifts can provide you with directions of travel.”
One area that they have soured on over the past quarter is mining stocks, with analysts lowering their 2022 revenue expectations for Antofagasta by 11.6%, while Rio Tinto and Anglo American each were demoted to the tune of 5.4%.
This is despite a year of heightened demand for commodities caused by a number of factors including the re-opening of the world after the pandemic, the war in Ukraine cutting supply and supply chain issues around the world.
Burgeman said: “Perhaps most noteworthy is the reduced expectations at mining companies, which have benefited from the higher cost of commodities over the last year – particularly industrial metals.
“Cutting revenue expectations points to the fact that analysts are predicting lower demand as the economy takes a turn for the worse.”
The IA Commodity/Natural Resources sector climbed 19.3% from the start of the year but returns have sunk 1.3% over the past three months, perhaps signifying the start of a downturn.
Total return of IA Commodity/Natural Resources in 2022
Source: FE Analytics
However, Burgeman urged that these downgraded expectations may not affect the long-term profitability of some miners, stating: “Short-term revisions in either direction do not immediately determine whether a company is good or bad.”
Similarly, some speculated that the UK financials sector would benefit from the sharp interest rate hikes implemented by central banks to combat rising inflation, but analysts also lowered their revenue expectations for 2022.
Analysts revised their expectations for financial groups, Aviva, 3i, Schroders and Abrdn down by 18.6%, 17%, 4.5% and 3.8% respectively over the past months.
Bottom 15 FTSE 100 analyst revenue expectations for full-year 2022, three-month change
|
Stock |
FY 2022 three month change |
|
GSK |
-23.40% |
|
Aviva |
-18.60% |
|
3i |
-16.90% |
|
Antofagasta |
-11.60% |
|
Ocado |
-8.00% |
|
BP |
-6.70% |
|
Rio Tinto |
-5.40% |
|
Anglo American |
-5.40% |
|
B&M |
-5.40% |
|
Hikma |
-4.80% |
|
Schroders |
-4.50% |
|
Abrdn |
-3.80% |
|
Avast |
-3.70% |
|
Intermediate Capital Group |
-3.20% |
|
St James's Place |
-3.10% |
Source: Brewin Dolphin
That being said, high street bank chain, Barclays broke the mould and was among those that were revised upwards. It was among the top 15 FTSE 100 company predictions to be increased, with revenue expectations rising 6% over the period.
Most of the biggest revenues forecasts hikes, however, came from British energy companies.
Like the mining sector, energy suppliers have benefited from heightened demand caused by Russia’s invasion of Ukraine, but their revenues are expected to continue rising for the remainder of the year.
SSE, National Grid, and British Gas owner, Centrica, have had their revenue expectations increased by 16.5%, 13.4%, and 12% respectively over the past three months.
Energy price levies could dampen the high profits raked in by these companies, but their share prices have gone up over the past 12 months regardless.
Share price of Centrica, National Grid and SSE over the past year
Source: Google Finance
Oil producer, BP, was an exception to its peers, with analysts’ revenue predictions declining 6.7%.
Although oil has held a higher value since large imports from the East were cut off, the company’s divestment from Russian energy group, Rosneft, is likely to have damaged sentiment.
Burgeman said: “BP, when you look at profitability, could actually benefit from the selling off of Rosneft, despite the short-term revenue decline.”
Several companies also appeared in the top 15 revenue forecast rises due to their success in passing on cost inflation to customers.
Top 15 FTSE 100 analyst revenue expectations for full-year 2022, three-month change
|
Stock |
FY 2022 three month change |
|
SSE |
16.50% |
|
National Grid |
13.40% |
|
Centrica |
12.00% |
|
DCC |
10.70% |
|
Smurfit Kappa |
8.00% |
|
Compass |
7.90% |
|
Berkeley Group |
7.80% |
|
DS Smith |
6.70% |
|
Mondi |
6.20% |
|
Reckitt Benckiser |
6.10% |
|
Barclays |
6.00% |
|
Bunzl |
5.70% |
|
Whitbread |
5.60% |
|
Halma |
5.50% |
|
Coca Cola HBC |
5.40% |
Source: Brewin Dolphin
Packaging providers, Smurfit Kappa and Mondi, as well as consumer staples business, Reckitt Benckiser, all had their revenue expectations upped by 8%, 6.2% and 6.1%.
On the other hand, pharmaceuticals company, GlaxoSmithKline, had been less successful in passing on higher operating costs and its income forecasts had the biggest drop on the FTSE 100 index as a result.
Revenues expectations for 2022 fell 23.4% over the past three months, but Burgeman was still optimistic about the company’s future.
He said: “GlaxoSmithKline has seen expectations of its revenues fall the most but we know this is a one-off event that, in the long run, should make for a stronger business.”