Earnings look ahead – Marks & Spencer, United Utilities, Tate & Lyle

A look at full-year earnings next week in the UK.

Marks & Spencer
Source: Bloomberg

Marks & Spencer (full-year results 23 May)

Marks & Spencer (M&S) is expected to report earnings of 27.8p per share, down 8% year-on-year, while revenue rises 1.5% to £10.79 billion. M&S remains in the throes of a turnaround strategy, as it looks to make its long underperforming clothing division more competitive. Continued expansion for its food division has helped to keep revenue moving higher at this part of the business, but the move online is taking longer than thought. Meanwhile, competition from other stores in the mid-price part of the spectrum has limited performance. Margin improvements are crucial, but this is a longer-term process, however continued store closures will help reduce some fixed costs. M&S currently trades on a forward price to earnings (PE) ratio of 10.7, indicating a relatively undemanding valuation, but there is much work to be done.

M&S shares have steadily declined for the past three years. Rallies to the descending trendline from the 2015 high have been seen several times over the past year, with the latest running into trendline resistance around 300p. A failure to break above this would suggest a fresh turn lower, down towards the 2018 low at 261p. Above 300p, the price would target 307p and 314p, then 328p.

United Utilities (full-year results 24 May)

United Utilities is forecast to report 0.4% growth in earnings over the year, to 46.2p per share, while revenue is expected to rise 2% to £1.74 billion. The recent trading update laid out expected further improvement for the business, with regulatory changes boosting performance. A rise in the retail price index is likely to result in higher payments on index-linked debt, with net finance expenses forecast to be around £40 million higher than a year ago. The company trades on a forward PE of 16.8 and has a chunky dividend yield of 5%, off the highs of early January, but this has distinctly improved over the past three years.

United Utilities broke the downtrend from the 2017 high during April, and pushed on above the early April high at £7.35. Further gains above the 200-day simple moving average (SMA) at £7.91 would target £8.17, £8.33 and then £8.53. Short-term trendline support from the lows of late March would come into play around £7.50.

Tate & Lyle (full-year results 24 May)

Tate & Lyle is expected to report a 3.5% rise in earnings, to 48.8p per share, while revenue nudges 0.1% higher to £2.76 billion. Sales growth has been hit as a result of the firm’s decision to switch to quality volume, while the ongoing price war in sucralose has meant that the company has derived little benefit from the ongoing fall in sugar prices. One big worry is the collapse of the North American Free Trade Agreement (NAFTA), since it will result in overcapacity in parts of the US market and will hit revenue. The current forward of 12.6 is below the five-year average of 14.5, while a 5.3% yield, covered 1.6 times, looks solid. 

Shares in the firm have rallied strongly from the March lows, but upward progress is beginning to falter. A turn lower from here creates a new lower high, but even a push to £6.50 would still be within the context of the downtrend from the 2017 high and present another selling opportunity. Short-term rising support from the March lows comes into play around £5.90.

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