Earnings look ahead – Marks & Spencer, Burberry, Barratt Developments

A look at company earnings next week.

Source: Bloomberg

Marks & Spencer (Q1 trading statement 11 July)

The full-year results from Marks & Spencer saw a 64% fall in pre-tax profit, as the firm boosted investment, but an 11% rise in full-price clothing and home sales was trumpeted as evidence of real improvement. But the outlook seems tough, with retail sales growing only 0.9% in May, the lowest since April 2013. A robust dividend does not really compensate in the longer-term for a difficult trading environment. CEO Steve Rowe may find that he is not out of the woods yet.

A spike above 390p was defeated at the end of May, with the price heading back into the 313p – 359p range that has held since last summer. A break above 359p still needs to crack the descending trendline off the 2015 highs. Meanwhile, a drop below 313p would clear the way to 256p. 

Burberry (Q1 trading statement 12 July)

Recent changes at the top in Burberry, and a pay dispute, have dominated the news, but the change in management will take time to filter through. Sterling weakness earlier in the year has abated, so there may be a hit to performance. Investors will want to see recent good growth in Asia continue, even if not quite at the same pace. Burberry currently trades at 19.7 times forward earnings per share (EPS), versus 15 times for its broader peer group.

The shares have fallen back to the 200-day simple moving average (SMA), the first time they have touched this since September last year. With momentum now heavily oversold, a bounce is possible, but we will need a push above £16.31. Below the 200-day SMA (currently £16.01), the price could test key support at £15.42.

Barratt Developments (Q4 trading statement 12 July)

Recent updates from Barratt Developments continue to point to a strong trading position, with total forward sales from 1 January to 7 May hitting an all-time high at £3.21 billion, up 12.7% year-on-year. The latest house price index showed that in June growth fell to 2.6%, a four-year low, so there is reason for caution. However, prices are still 9% higher from their pre-recession peak of August 2007, so the longer-term trend is intact. At 9.8 times forward earnings, with a 7% yield the company seems to combine growth and income.

A recent spike higher off the post-July 2016 trendline suggests that we will see the price head back to resistance at 624p, the May high. Only a close back below the late-June low of 555p, which would also put it below the rising trendline, gets the price on a more bearish footing.  

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