It has been a year when many investors have seen their expectations dashed. At the start of 2011 talk of a 'double dip' was something that the mainstream scoffed at. Back then, it was all about recovery – at worst a slow one. Fast forward 12 months and everyone is predicting another recession and not just in the go-slow UK economy. The market is once again casting its slide rule over the list of potential casualties and analysts are slowly bringing down their earnings forecasts for next year, either in response to profits warnings or in anticipation of them.
It is analysts' forecasts that this screen focuses on. While the nature of forecasting means that brokers often don't change their predictions until the writing is clearly on the wall, forecast upgrades and downgrades can be a valuable guide to sentiment. With our screen, we've compared current earnings forecasts for the next fiscal year for all FTSE 350 companies with the predictions for the same period that were being made a year ago. The idea is to see which companies are judged to have seen their prospects improve over the last year and which are doing worse than had been expected.
It is worth noting that forecasts may still be rather optimistic as the unweighted average forecast for FTSE 350 stocks is only 1 per cent down on a year ago, whereas the general mood is significantly darker. Hopefully, though, where forecasts have improved significantly, it points to genuine growth opportunities, whether it be structural growth or recovery.
As well as looking for the largest rises in forecast earnings, we've also looked for some other factors that suggest earnings will grow and that brokers' expectations may stack up. These are:
■ EPS growth of 10 per cent or more;
■ Share price performance over the last year must be positive compared with a 7.1 per cent fall by the FTSE 350;
■ Shares must have outperformed the index over six months, three months and 1 month.
Better than expected
|Company||Price||Forecast PE ratio||Dividend yield||1-year price change||3-month price change||1-month price change ||Forecast upgrade
|BOVIS HOMES ||447p||27||1.0%||15%||15%||-1%||29%
|Company||Price||1-year price change||3-month price change||1-month price change ||Forecast downgrade
|ROYAL BANK OF SCOTLAND||20.4p||-51%||-7%||-9%||-47.8%
|HOME RETAIL GROUP||87.25p||-57%||-19%||3%||-53.2%
|CABLE & WIRELESS WORLDWIDE||17.1p||-75%||-45%||-44%||-63.5%
|LLOYDS BANKING ||24.7p||-64%||-22%||-14%||-65.4%
Recent half-year results from US-focused equipment hire group
smashed City expectations and left brokers rushing to upgrade full-year expectations. While Ashtead's end market, the construction sector, is extremely cyclical, the current tough conditions are actually suiting it extremely well. While the sector may be struggling in the US, it is stable and a lack of finance means builders are increasingly reliant on renting kit. This is not only increasing the amount Ashtead can hire out but also the rental rates it can charge. So times are good for the group.
Last IC view: High enough, 205p, 12 Dec 2011
Drugs development company
has made good progress recently by taking control of its own sales. The group is also sitting on over £90m-worth of net cash, which puts it in a very strong position, and there will be hopes that its drug development pipeline can provide some upside in 2012. However, while earnings expectations are rising, the shares can hardly be described as cheap when priced against them, even after taking account of the cash pile.
Last IC view: Fairly priced, 301p, 17 Nov 2011
Business is booming for high-tech tools company
. Its tools are used to manufacture and develop a number of cutting-edge technologies around the world. Having recently reported on a bumper first six months to the year, the group expects even better things in the second half. Demand has been particularly strong from China, which makes up 17 per cent of sales, although fears about the region's economy are once again mounting. Acquisitions are also helping growth and the balance sheet is strong.
Last IC view: Fairly priced, 915p, 16 Nov 2011
The housebuilding industry has been tough since the credit crunch began, but
is one company that has avoided many of the industry pitfalls. Having not gorged on debt during the boom times, it was left in a strong financial position after the market crashed. What's more, its focus on top-end property in the south east of England means it is in one of the few house market sweet spots. The company has plans to return £13 a share over the next 10 years and recent strong returns on capital put it well on track to achieve that aim.
Last IC view: Buy, 1,358p, 6 Dec 2011
had a distinctly more trying time during the credit crunch than Berkeley, but things have started to look up. While the market continues to look fairly stagnant, the group's profits are benefiting from falling costs. Part of this reflects the impact of the recession on the cost of things, such as labour. But, significantly, the group is now building on land brought at low prices after the market collapsed. Bovis is also sitting on cash and a large land bank but, until the market picks up, there are limits to what this can do for growth prospects.
Last IC view: Good value, 353p, 30 Aug 2011
Demand for the equipment sold by pump maker
is connected to the commodity cycle, which is looking a bit rickety at the moment. Major end markets include oil and gas exploration and copper mining. However, the group also has something of a structural growth story as its equipment is vital for less conventional exploration activity, such as fracking. Orders are booming, which has been reflected in the broker upgrades during the year.
Last IC view: Good value, 2,075p, 2 Aug 2011
is another beneficiary of the shale gas boom, which has contributed to buoyant demand. The group has also been benefiting from its own self-help measures and has offset rising raw material costs with increased production efficiency. Demand is cyclical, though, and the high coal price has unpinned sales of conveyor belts, which makes current worries about the state of the global economy relevant. That said, Fenner's new financial year has started well and the group should continue to benefit from making bolt-on acquisitions.
Last IC view: Buy, 352p, 10 Nov 2011
At a time when real incomes are falling and utility bills are soaring, a company that can promise households savings is in a strong position to win business. That is the position
is in. It operates a utility services buying club which secures discounts for its members. Not only has the current tough conditions for consumers helped it win new customers, but the group is also reducing the rate at which it loses existing customers. Households are taking more services from the group and cheaper sourcing has helped push up margins. All this means fast rising revenues, profits and forecasts.
Last IC view: Fairly priced, 741p, 22 Nov 2011
Rotork's control systems business has been performing strongly this year, building on a strong 2010. However, its main market is considered relatively mature. The group has therefore moved into the higher-margin pneumatic controls market with the $76m purchase of US company Fairchild. The acquisition is being put into a newly created instruments division, which is expected to provide the group with strong growth opportunities, and brokers have upgraded their forecasts following the purchase. Like other engineers, though, Rotork is exposed to the global economic cycle.
Last IC view: Fairly priced, 1,803p, 7 Dec 2011
Drugs company Shire has recently been the beneficiary of a rivals problems: namely the manufacturing difficulties experienced by Genzyme. Off patent drugs are also doing better than expected due to the relative slowness of generic drug companies to manufacture alternatives. The group is in a relatively well protected niche of the drug market making enzyme replacement therapies and has also been benefiting from a steady stream of new treatments that are coming through, as well as acquisitions.
Last IC view: Buy, 2,053p, 4 Aug 2011