# 1 Year Forecast Normalised EPS Figures



## TPI (2 September 2014)

Hi,
Most broker websites have 1 year forecast EPS figures, is this usually a normalised figure (ie. adjusted for abnormal profits/losses and changes in reserves)?
If not, how do I find/work out a normalised forecast EPS figure?
Thanks.


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## coolcup (2 September 2014)

TPI said:


> Hi,
> Most broker websites have 1 year forecast EPS figures, is this usually a normalised figure (ie. adjusted for abnormal profits/losses and changes in reserves)?
> If not, how do I find/work out a normalised forecast EPS figure?
> Thanks.




Hi TPI

My understanding is that these figures are usually provided by a consensus provision service like Thomson Reuters, Iress or Bloomberg (amongst others). They are usually a simple average of all the research analysts which they subscribe to and the research analysts generally only forecast normalised or operating earnings rather than including one offs which are often, by their nature, difficult to forecast.

You should be aware that not each of the consensus numbers provided is universal. When I say this, it means it does not necessarily pick up every forecast in the market. For example, Commsec sources its data from Thomson and I know that Thomson does not cover every research analyst in the market. This could skew the consensus figures provided from one broker to another.

Hope this helps.


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## TPI (2 September 2014)

Great reply, thanks coolcup.

With normalised EPS figures are you aware if they usually take into account employee options that may be exercised in the forecast year?

And also new shares issued under a dividend reinvestment plan?


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## pixel (2 September 2014)

TPI said:


> Great reply, thanks coolcup.
> 
> With normalised EPS figures are you aware if they usually take into account employee options that may be exercised in the forecast year?
> 
> And also new shares issued under a dividend reinvestment plan?




Shares added under a DRP are as close to dilution-neutral as not to matter. (A) Their numbers are very low, in percentage terms less than half the dividend yield. (B) They are still being paid for - sometimes at a small discount to a share's market value; but the cash flowing back into the company's coffers just about neutralises the effect a larger number of shares on issue might have.

Staff options and incentive freebies could be argued in a different light. However, their number, as a percentage of the entire share base, is usually so small that any diluting effect will be well inside the noise margin of analysts' guesstimates. In all these fundamental calculations and analyst consensus data, you will find the spread of opinions exceeds those few % of additional shares by large multiples.

In this context, I have long been bemused why they call it "consensus". If one analyst suggests a stock is a Sell, another may judge it a Strong Buy; Morningstar would then opine something like "Hold"; as neither analyst would agree with that, how can it be a consensus.  By all means, call it an average...


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## coolcup (2 September 2014)

Hi Pixel

I agree with your view that the consensus recommendation is a nonsense in terms of averaging the buys / sells / holds of each analyst - particularly where there are very few covering a stock as the situation you have described can arise quite easily.

I do find averaging the analyst EPS / DPS forecasts useful though to get a sense of what the market is expecting in terms of growth rates from a business in the short term to compare against my own sense of how fast / slow a company's earnings could grow in the next few years.


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## TPI (3 September 2014)

pixel said:


> Shares added under a DRP are as close to dilution-neutral as not to matter. (A) Their numbers are very low, in percentage terms less than half the dividend yield. (B) They are still being paid for - sometimes at a small discount to a share's market value; but the cash flowing back into the company's coffers just about neutralises the effect a larger number of shares on issue might have.
> 
> Staff options and incentive freebies could be argued in a different light. However, their number, as a percentage of the entire share base, is usually so small that any diluting effect will be well inside the noise margin of analysts' guesstimates. In all these fundamental calculations and analyst consensus data, you will find the spread of opinions exceeds those few % of additional shares by large multiples.
> 
> In this context, I have long been bemused why they call it "consensus". If one analyst suggests a stock is a Sell, another may judge it a Strong Buy; Morningstar would then opine something like "Hold"; as neither analyst would agree with that, how can it be a consensus.  By all means, call it an average...




Thanks pixel, that all makes sense, probably not worth worrying about.


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