Professional investors can review published thought leadership and market updates from the Argonaut Investment Team.

‘A Quiz on European Corporate profits and the accuracy of analyst’s forecasts’

1.) This time last year, which sector did analysts forecast to have the highest earnings growth in 2012?
2.) Which sector has seen the biggest downgrades to growth expectations over the last year?
3.) In which sector are analysts forecasting the fastest growth in 2013?


The Answer to all three questions is BANKS

As we can see from the table below, this time last year analysts were forecasting 22% earnings growth for the European banking sector in 2012 and 11% for the  market as a whole. Today they are forecasting banking profits for 2012 to decline by 19%, a downgrade of 39% over the last 12 months. Estimates for market growth are now a decline of 2%, a downgrade of 14% over the last 12 months. Other sectors to disappoint have included Materials (primarily Mining) and Technology (largely related to the woes at Nokia). By contrast Insurance has seen upgrades of 13% over the 12 months, whilst Consumer sectors, Healthcare and Property have largely met expectations.

Table 1: Earnings growth estimates

*Source: UBS, Argonaut Capital Partners, October 2012

We can also see analyst forecasts for 2013 as of today. You would be forgiven for thinking that they look very much like the forecasts for 2012 made 12 months ago, with 12% profit growth for the market as a whole (against 11% forecast this time last year for 2012). We can also see that Banks are again forecast to be the highest growth sector, with 28% earnings growth. No sector is forecast to see profits fall.

Whilst recent central bank action has had a positive effect on asset prices and credit spreads this forecast acceleration in profit growth would seem to require a rather more significant pick-up in economic activity in the real economy than we have seen to date. There may also be considerable scepticism that the European banking sector can buck a four year trend of downgrades and deliver a significant bounce back in profits in 2013.

Greg Bennett
Fund Manager
9 October 2012