Earnings look ahead: Pearson, Barratt Developments, InterContinental Hotels

Publisher Pearson, housebuilder Barratt Developments and InterContinental Hotels release trading statements next week.

Housebuilders
Source: Bloomberg

Pearson (Q3 statement 16 October)

First-half figures for Pearson showed some signs of growth despite ongoing problems in its US higher education division. Tough comparatives with its South Africa performance last year will make life difficult, and most of the improvement for the year should come from cost reduction. At 14.2 times earnings the shares are now just below their five-year average of 14.8, having seen a notable re-rating since the first half of the year.

Pearson has steadily lost ground since July, with the latest sell-off driving the shares close to the £7.57 high of March. A bounce from here will be positive if it can maintain momentum above the post-September 2017 trendline.

Barratt Developments (Q3 statement 17 October)

Barratt Developments has suffered as sentiment towards the UK economy and housebuilders in particular has experienced hardship. Overall however the firm remains confident on the outlook, with pre-tax profit for the year expected to rise 9% to a record of over £800 million. At 7.4 times earnings the shares are now at their cheapest level since June, and are headed towards the low valuations of 2016.

The shares have recorded lower highs since the October 2017 peak, and a rebound above £5.40 is needed to change this. A decline below 486p brings 448.7p into view, the low from July.

InterContinental Hotels (Q3 statement 19 October)

Global growth concerns are beginning to make themselves felt in markets, and with much of InterContinental Hotels Group's (IHG’s) business tied up in Asia these jitters may be reflected in performance. Trade wars are also another issue that may well find their way into the statement. The company’s advantages are in solid operating margins, which are currently wider than their two-year average, at 43.9% versus 38.4%, and are well above their competitor average of 19.3%. At 18.2 times forward earnings, the shares are also well below their five-year average of 24.

The drop over the past two weeks has headed towards the March lows at £41.60. A bounce from here targets the £44.90 level. A close above the top of the gap down earlier in October, ie above £43.00, would suggest that buyers are back in control.

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