Earnings lookahead – Bellway, Kingfisher, Next

A look at company earnings next week.

Source: Bloomberg

Bellway (first-half results 20 March)

Housing shares remain an interesting play in the UK, despite worries that first-time buyers are becoming scarcer. Overall market conditions remain favourable for the firm, with government policies such as Help to Buy still in place. In addition, a strong balance sheet with little debt and plenty of cash gives Bellway an encouraging financial position. A 4.5% dividend, plus a competitive forward price-earnings (PE) ratio of 7.5, makes the company one to watch.

It has beaten estimates in five of the last seven results days, but has stumbled over the past few months, giving back all the gains made since September. The first possible area of support, is £30.12 with £29.68 just below this. A break above £31.50 would be a first positive step, but we will need to see a move above £37 to take out the 2018 high.

Kingfisher (full-year results 21 March)

Kingfisher remains in a turnaround plan, which will likely require further hefty investment. Current forecasts suggest earnings will rise 12% in financial year (FY) 2019 and around 16% in the following FY. However, with sales down 0.5% for the three months to the end of October 2017, these figures may require some hefty revisions. In addition, it has £400 million in debt due over the next twelve months, and with conditions on the high street remaining difficult this could be a tricky task for the company. Kingfisher is expected to report earnings of 24p per share, down 1.4%, while revenue is expected to be 3.8% higher at £11.66 billion. A forward PE of 14.6 is not excessive, but given the troublesome outlook the 3.8% forecast yield is still not incentive enough.

A steady climb over the past few months now looks under threat, given that we have seen a possible lower low being created with the drop below 344p. The next targets are 330p and then 312p.

Next (full-year results 23 March)

The big story with Next has been the continuing divergence between its high street and online sales. As European rival Inditex said earlier this week, online sales remain vital for the firm’s survival. Next may well have to reduce its store space, a path taken by M&S and others, or secure rent reductions from the building owners. Either will be painful. In addition, the cold weather in February will probably exacerbate a slow start to the year. Next is expected to report earnings of £4.10 per share, down 4%, while revenue is expected to be £4.12 billion, up 0.6% year-on-year. At 11.8 times forecast earnings, the shares are cheaper than the sector peer average of 16.8 times.

The shares have steadily climbed since their low back in July, but recent weakness has seen them continue to fall from the January high at £52.60. Rising trendline support should come in around £46.00. A move back above £50.00 targets £52.60 and then £53.55.

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