Earnings look ahead – Anglo American, Taylor Wimpey, Travis Perkins

A look at earnings coming up next week. 

Travis Perkins
Source: Bloomberg

Anglo American (Q1 update 24 April)

Free cash flow of $5 billion for 2017, the highest dividend in ten years and a 50% reduction in net debt mean that Anglo American will have a tough job when it announces its production report for the first quarter. The ongoing rebound in commodity prices, spurred on by fears of Russian sanctions, should also provide support for earnings. A 4.7% yield also boosts the attractiveness of the shares, especially given the sector peer yield of 2.7%.

Having found a bottom back in June 2016, the shares have continued to rally, posting a multi-year high in February at £18.70. The latest bounce off the rising trendline from June 2016 has created a new higher low, so we look for a challenge of £18.70 in due course.

Taylor Wimpey (full-year trading statement 26 April)

As interest rates begin to rise and house price growth cools, Taylor Wimpey, in common with other housing stocks, will face a tougher operating environment. Still, the surge in sterling over the past year continues to bear down on import costs, which will at least help if selling prices (which were up 3.5% last year) begin to wilt. An operating margin in excess of 20% has allowed net cash to rise 40% to over £500 million, and with the firm on a forward price-earnings ratio (PE) of just 9 it still seems like there is plenty of upside surprise left in the share price, especially when compared to the sector average of 13.7.

The stock has bounced once again from the 180p support zone. However it is faltering below 195p, as it did back in February. Near-term support levels come in at 189p, 183p, the 180p area and then 173p. Above 200p, the price targets 211p.

Travis Perkins (Q1 trading statement 27 April)

It is expected that quarter one (Q1) will be a tough one for Travis Perkins, given that weather and the timing of Easter will hit performance. Not much change should be expected in the outlook commentary, since weakness in the prior three months can still be blamed on the aforementioned factors. Flat underlying earnings are expected for the full year, with an improvement on gross margins expected. Still, despite the less-than-encouraging outlook, the firm’s forward PE is 11.8, versus a 12.3 sector valuation, and it also boasts a 3.5% yield against a 2-year average of 3%.

The July 2015 peak above £22.00 seems a long time ago. Since then, even sustained rallies such as in the first half of 2017 have run out of momentum. The price has bounced from £12.00, but the downtrend line from the 2015 high only comes into play around £14.50, so we need to see this line broken before we can become positive about the technical outlook. Below £12.00, the £10.70 level (the 2016 low) comes into view.

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