It is a typical red flag when a company starts talking about second half weighted earnings.
It’s basically City speak for ‘things haven’t gone quite as well as we hoped, but don’t panic, we can pick up the slack in the latter half of the year.’
This can leave companies facing a mountain to climb in terms of achieving forecast earnings.
Sometimes companies can obtain the necessary uplift in earnings during the second half of their financial year, sometimes they cannot.
Investment bank Liberum has compiled a list of FTSE 350 companies with the biggest second half challenge to hit market expectations.
Liberum’s most at-threat list is topped by energy producer Drax (DRX), engineering firm Weir (WEIR) and gaming technology company Playtech (PTEC).
Liberum’s study has looked at typical first half and second half sales and earnings splits in percentage terms, averaged over the past five years. The results are compared with trends in the current fiscal 12 month period.
Other companies with full year expectations perceived to be at risk this year include shipping group James Fisher (FSJ), manufacturing component distributor Essentra (ESNT) and Centrica (CNA), the energy supply giant that owns British Gas.
The following table illustrates how certain companies need to generate a greater amount of earnings in the second half period versus their historical norm.
For example, Drax has generated 34% of earnings per share in the second half period over the past five years; but this year it is forecast to generate 46% of earnings in that six month period. Therefore the variance is 13%.
The higher the variance figure, the greater the mountain it has to climb in terms of earnings generation.
| Share price | Market cap | Variance to 5-year average | |
| Drax | 312.1p | £1.27bn | 13% |
| Weir | £19.81 | £4.39bn | 10% |
| Playtech | 912p | £2.91bn | 10% |
| James Fisher | £15.58 | £780m | 8% |
| Essentra | 545p | £1.45bn | 6% |
| Centrica | 191.8p | £10.5bn | 5% |
Liberum’s analysis has also looked at the flip side, identifying companies which have enjoyed stronger than typical first half periods.
This may suggest scope to beat current full year forecasts. The study shows consumer financing firm Provident Financial (PFG), satellites operator Inmarsat (ISAT) and building supplies firm CRH (CRH) as the highest scorers.
