Earnings look ahead – Capita, United Utilities, TUI

A look at trading statements expected this week. 

Source: Bloomberg

Capita (full-year earnings 30 March)

It is going to be a long slog for Capita, a point made repeatedly by its CEO, Jonathan Lewis. Further updates on its plan to pull away from the dependency on the UK government work are likely, plus further details on the current plans to issue up to £700 million of new shares. At just 5.3 times forward earnings (versus a two-year average of 10.4) the shares remain cheap, but until the turnaround plan is accomplished this low rating would appear to be justified.

There is not much to like about the Capita chart. A series of gaps lower have left the shares trading at multi-year lows. The first target in a rally would be the bottom end of the gap down, at 249p, and then the top end at 342p.

United Utilities (Q4 statement 27 March)

Political and regulatory risk remains at the forefront of investor concerns for United Utilities, with the drop in the share price buffing up the yield to over 6%. Inflationary pressures will be felt as well, as the firm sees its cost of borrowing rise. Still, at 12.9 times forward earnings, the shares are cheap relative to the two-year average of 19.4.

Rallies have been firmly sold into since May of last year. The recent bounce off £6.49 saw a rally, but once again gains have been given back. Levels to watch on the downside are £6.49 and then £6.40. A move above £7.50 is needed to break the current downtrend.

TUI (Q2 statement 28 March)

TUI’s recent strong set of numbers pointed towards expectations of a good summer, and we should get some more colour on this in the statement. Ongoing increases in turnover are a testament to the shift towards owning hotels and cruise ships, rather than simply being a tour operator. At 13 times earnings the stock is above its two-year average of 11.6, but is not unduly expensive.

The shares continue to find support around the £14.97 mark, and have held the rising trendline from the June 2016 lows. Further gains above the 50-day simple moving average (SMA) at £15.64 would suggest a move back to £16.52 and then £16.88. 

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