Earnings look ahead – William Hill, easyJet, Thomas Cook

A look at company earnings next week.

William Hill
Source: Bloomberg

William Hill (trading update 20 November)

Recent broker upgrades have lifted William Hill, with the positive commentary coming even as the government consultation on fixed-odds betting terminals (FOBTs) looms over the sector. Bank of America Merrill Lynch said recently that it does not expect a £2 cap on FOBTs, with a £20 cap being more likely. Even on a £2 cap, the firm would trade at just over 12 times forward earning, compared to a five-year average of 12. A possible liberalisation of the US market could provide significant upside, although it is unlikely that the topic will come up in the trading statement.

The recent bounce has carried the shares back to the 284p high from the beginning of August. A close above here would bring the May peak at 308.5p back into frame. However, a close above here is required to cancel out the sequence of lower highs seen since mid-2016. Significant support comes from 235.7p, having stemmed the downside since June last year.

easyJet (full-year results 21 November)

Having just acquired part of Air Berlin's operations at Tegel Airport, easyJet has signalled its resurgence as a major player in the European budget airline market. While competition continues to ramp up, a 17% rise in profits is still expected for the coming financial year. Passenger numbers continue to rise, and with consumers in the UK under pressure due to a squeeze on real wages, some customers are likely to return to budget airlines from the big flag carriers. The firm is forecast to report earnings of 83p per share, down 22% year-on-year, while revenue is forecast to rise 7% to £5 billion.

The shares have steadily recovered from the October 2016 lows, with higher lows indicating buying pressure after each period of weakness. The recent pullback from £13.50 has seen buyers emerge, and a move above this level brings the 2017 high at £14.42 into play.  

Thomas Cook (full-year results 22 November)

Thomas Cook issued a good third quarter (Q3) update back in July, although it felt margin pressure due to stiff competition in Spain. Investors will want to see whether summer 2018 bookings are holding up at this stage, with plenty of visibility on the upcoming winter season already. At 9.7 times forward earnings, the shares are above the two-year average. Although it still has lots of work to do in catching up to competitors where operating margins are concerned, with its 4.1% lagging behind the 10.9% for sector peers. The travel firm is expected to report 9.7p per share in earnings, up 14.7% year-on-year, while revenue is forecast to rise 8.2% to £8.4 billion.

From a low of around 55p back in summer 2016, Thomas Cook has continued to climb, reaching 127.8p in September, the highest level since mid-2015. The price has faltered since then, but buying around 110p over the past week has helped contain the downside. Even a further dip towards 100p would still be a higher low in the current uptrend. A turn higher targets 125p and then 127.8p.

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