14 Percent Of FTSE 350 Companies Matched Analysts Earning Per Share Forecasts In 2005, Says Parson Consultancy Study

A study of financial forecasting accuracy by management consultancy Parson Consulting, shows that just 49 out of the FTSE 350 list of companies (14 percent) matched analysts' earnings per share (EPS) forecasts in 2005, up three points from the previous

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A study of financial forecasting accuracy by management consultancy Parson Consulting, shows that just 49 out of the FTSE 350 list of companies (14 percent) matched analysts’ earnings-per-share (EPS) forecasts in 2005, up three points from the previous year, but still way short of their US counterparts.

Some 39 percent of S&P500 companies hit analysts’ expectations (plus or minus 1 percent), an increase from 34 percent in 2004.

Companies in other leading stock exchanges around the world performed even worse in this respect than those in the UK. Less than 10 percent of those in the SBF120 (France), DAX100 (Germany) and HM (Hong Kong) matched analysts’ expectations. However, the study also found UK-listed companies were most likely to over-perform against forecast when compared to their foreign counterparts.

Parson Consulting’s annual study, ‘Hits and Misses’ compares analysts’ forecasts of a company’s EPS against actual company results. This year’s study shows little improvement in EPS forecasting accuracy; 55 percentt of the FTSE350 exceeded analysts’ expectations for 2005 (60 percent in 2004) with 19 percent (18 percent in 2004) exceeding expectations by more than 10 percent. Around a third (31 percent) came in below expectations, the same figure for 2004.

“Our study suggests that a certain amount of ‘sandbagging’ is going on; that some companies, particularly those in the UK, believe the market will view them favourably if they hold back good news and then report higher than expected results,” says Kevin Narain, a regional managing director for Parson Consulting. “But this is not necessarily so. Failing to communicate variances against expectation can just as easily result in the opposite of what was intended happening. Analysts need to be able to trust companies to communicate accurately and regularly, and variances in either direction undermine that trust.”

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