REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Brokers'
Forecast Changes
The
other way of detecting fast-accelerating EPS is to study
the REFS tables of brokers’ consensus forecast changes
each month.
These are presented in order of magnitude of upward change
in the current year’s forecast during the previous
month. They cover every index and non-index company where
broker forecasts are available. The top of the FTSE SmallCap
Index table below shows the layout. The table for just the
FTSE SmallCap Index covers about five pages ending with
companies that have had their profit forecasts downgraded.
Therefore, the final entry is for the largest percentage
downward revision of the brokers’ consensus forecast.
There
are a number of points to be aware of when reading the tables:
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They focus on the change during the previous month. In
some cases, this will be an offset of a revision the other
way during the previous three months.
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The second set of three columns shows the next year’s
forecast, which is equally, if not more, important. For
example, an upward revision for the current year would
be uninviting if it was accompanied by an equal or greater
downward revision in the following year’s forecast
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The
relative strength during the month, three months and previous
year are, of course, always of vital importance. The market’s
reaction to revisions of forecasts is usually the best
indicator of whether or not the news is a surprise.
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The
final two columns are devoted to the PER and the prospective
growth rate, adjusted to take account of the most recent
consensus forecast.
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The
brokers’ consensus forecast is, of course, usually
made up of several individual forecasts. A major upward
revision often follows an event such as an unexpectedly
good interim or annual result, a major acquisition or
divestment or a major change in the outlook for the industry.
When there is a substantial upgrade or downgrade, the
underlying brokers’ forecasts should be checked
in the company entry.
Sometimes, the consensus forecast proves to be conservative
because some of the brokers are not abreast of events.
The consensus in REFS is weighted in favour of recent
forecasts, but if the company broker forecast is at a
higher level than the consensus that can sometimes be
encouraging.
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The
tables highlight only possible prospects for re-rating.
Any company that appears to be attractive should always
be double-checked with the company entry, the annual report,
press cuttings and brokers’ circulars in the usual
way.
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