Earnings look ahead – Rio Tinto, Unilever, Reckitt Benckiser

A look at upcoming trading updates from UK firms.

Reckitt Benckiser
Source: Bloomberg

Rio Tinto (Q1 update 17 April)

Rio Tinto's focus on iron ore will remain the chief story here, as the solid improvement in prices results in further divestments of some projects. Improved Chinese demand will also help support earnings, while cash returns should remain strong as the firm looks to continue asset sales in other metals such as aluminium and copper. A chunky dividend of 5.7% remains a key attraction for the shares.

Rio Tinto shares have fallen below the rising trendline that has held since June 2016. Worryingly for the bulls, the price has then rebounded and tested the trendline from below, but what was previously support has become resistance, with a push to £37.40 being repulsed. The next levels to watch on the downside are £34.85 and then £33.98. A daily close above £37.60 is needed to help restore the bullish outlook.

Unilever (Q1 update 19 April)

A string of acquisitions for Unilever should help drive growth, as the firm reaps the benefit of synergies and new products that will boost volumes. Profits for the full year are expected to be at the upper end of the 3%-5% target. In addition, strong margins and healthy cash flow suggest that the dividend will remain strong, and at 18.9 times forward earnings, the shares are below the 20.2 two-year average. A return on invested capital of 18.5% is a remarkably strong number, and confirms both why Unilever is such a favourite among investors and why it remains a possible takeover target.

Unilever shares have suffered a sharp reverse, falling back below £40.00 having rebounded from £37.00. Further downside would likely see £38.08 and then £37.00 retested, with the latter coinciding with the post-July 2015 rising trend. Above £40.40, £40.86 comes into play, but a move above £41.10 is needed to suggest a broader turnaround is in play.

Reckitt Benckiser (Q1 update 20 April) 

Investors seem to be relieved that Reckitt Benckiser will not be pursuing the Pfizer Consumer Health business, allaying fears that the company would have to engage in fundraising to help pay for the deal. Top-line growth continues to recover, helped by improvement in the healthcare division. Strong fundamentals and a relatively low valuation, at 16 times forward earnings versus 19 times for rivals, should help support the share price.

Reckitt shares hit their lowest level since September 2015 in March, and a gap lower this week, as the stock went ex-dividend, may well spark a new move back to the March lows at £55.61. A rally above £62.62 would suggest an attempt to test the current descending trendline from the July 2017 high is in progress.

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