Earnings look ahead: BHP Billiton, Persimmon, Premier Oil

A look at company earnings next week.

BHP Billiton
Source: Bloomberg

BHP Billiton (full-year results 20 August)

BHP Billiton is expected to report a 37% rise in earnings per share for the year, to $1.73, while revenue is expected to rise 19% to $45.55 billion. The average move on results day is 2.6%, while current options pricing suggests a move of 3.7%. The sale of US onshore oil and gas assets mean that the firm may well boost capital return as part of the $10.5 billion proceeds from the sale. Meanwhile, a more broadly positive outlook for the iron ore price should help the firm to remain optimistic on the outlook, even if trade wars do end up featuring as they did in Antofagasta's numbers. At 12.2 times forward earnings the shares trade comfortably below their five-year average of 16.7, suggesting more upside in the share price in the medium term.

The shares were knocked back sharply in the wake of Antofagasta’s numbers in mid-August, falling towards the £16.00 support zone. If this holds as it has done since late June, a bounce back towards £17.50 could be in the offing, and then to the high of the year at £18.00. Below the £16.00 zone, rising trendline support would come into view around £15.00.

Persimmon (half-year results 21 August)

The environment for housebuilders no longer looks quite as congenial as it did a few months ago, but at 8.9 times forward earnings, well below the five-year average of 10.8, Persimmon shares do not look aggressively priced. Admittedly, we will see further margin hits as costs rise, while the darkening outlook for house prices does suggest that the sector will be entering a more difficult period. Overall performance in revenue and margin terms was in line with forecasts at the recent trading statement, while the firm’s strong balance sheet, large land bank and excellent cash generation (operating margins of 29% versus 21.6% for the sector) mean it should be viewed as the ‘quality’ stock in the sector.

Dips towards £24 have found buyers, although since the beginning of July the price has found itself unable to hold above £25. A break of this range will determine the next direction for the stock price.

Premier Oil (half-year results 23 August)

A higher oil price and further asset divestments continue to help improve Premier Oil's cash position, but there is still plenty of work to be done on the balance sheet. Its overall target is to get to net debt of three times or less its level of earnings, and the firm is expected to get this to 2.5 by year end as net debt falls to $2.3 billion. Margins and production are expected to improve in the second half, while capital expenditure is expected to fall in the coming six months. At present the firm trades at 6.4 times forward earnings, compared to a five-year average of 35.7.

The price has bounced from the area of the 100-day moving average (109p), and created a new higher low after the rally from the March lows. Continued gains will target 130p and then 135p, while a close below 107p would ignite a more bearish move towards 97p.

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