Earnings look ahead – IAG, Ferrexpo, Electrocomponents

A look at company earnings next week.

British Airways plane
Source: Bloomberg

International Consolidated Airlines (March traffic update 5 April)

A monthly traffic update for International Airlines Group (IAG) is unlikely to provoke much excitement, but it deserves attention to see how key parts of the business, such as business travel, are faring. February’s figures showed a 2.9% increase for the month, with capacity up 2.2%. Plans for a new budget airline have dominated the news recently, and with the current multiple for IAG around 7, the shares look almost ludicrously cheap, given the solid way that IAG has managed to integrate its businesses and maintain the pace of expansion.

IAG shares have rallied strongly since October, but a high in March of 576p saw a pullback. However, the rising trend off the October low is intact, and should see a bounce develop from the 515p area. If 500p holds then the bulls remain in charge, potentially signalling a move back to 575p. A loss of 500p could be regarded as a bearish event. 

Ferrexpo (Q1 sales release 6 April)

Ferrexpo's tough year finished on a better note, having increased cash flows by 1.5 times to $332 million, despite the iron ore price at an eight-year low. The firm has also returned to paying dividends, and with a low valuation of around 6.5 times current earnings there seems plenty of room for further upside.

Comments on early trading for the new year should prove highly important for near-term direction, and while iron ore prices have wobbled there is reason for optimism.

Ferrexpo took off in the latter half of 2016, leaping to a peak near 180p. A dip to the 100-day simple moving average (SMA) in March brought out fresh buyers, but now the price needs to post a daily close above the 180p area. Support could be found at the 50-day SMA at 160p or below, at the 100-day SMA around 145p. A break below the March low of 138p would be a worrying development, potentially signifying a change in the trend direction. 

Electrocomponents (Q4 trading update 6 April)

First-half results pointed to a 44% increase in underlying pre-tax profit, and we will be looking for further evidence of healthy growth. Revenue was boosted by 12.7% to £706 million at the half-year point, but some of this was down to currency movements. However, the shares currently trade at around 25 times earnings, which is beginning to look expensive. Thus the outlook for the full year will need to be fairly bullish to avoid disappointment.

In February, Electrocomponents shares hit their highest level since 2002, but have lost ground since then. A short-term sequence of lower highs raises concerns that a bigger pullback is at hand, but so far the area around 465p has prevented further downside. A break below this would head towards 444p and then the 200-day SMA at 391p. A break to new multi-year highs requires a daily close above 518p.

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