Earnings look ahead – Bellway, Dixons Carphone, Centrica

A look at key earnings updates next week.

Price chart on screen
Source: Bloomberg

Bellway

(Q1 trading statement on 13 December)

In common with the rest of the sector, Bellway shares took a hit following the Brexit vote and have only recovered some of their losses in the months since. Its full-year numbers for the period to 31 July noted that reservations from 24 June to 31 July were 13% higher than for the same period a year ago, so the market will be closely watching to see how the rest of the quarter went. Signs of strength could mean the shares put on a late surge to help recover some lost performance.

Like others in the sector, Bellway trades on a cheap forward earnings multiple, relative to the average over the past five years (7.6 versus an average of 10.2). With a healthy dividend yield of 4.5% into the bargain, the longer-term picture seems to offer a good margin of safety.

Bellway shares started the year at a price of around £28. The post-Brexit low was £16 with the shares moving back towards £25 during the fourth quarter. So far they have been unable to push on meaningfully above this level. A break higher could see a challenge of £27, while a drop through £23 could mark the end of the post-Brexit bounce.

Bellway price chart

Dixons Carphone

(first-half earnings on 14 December)

Though nobody knew it at the time, the first days of 2016 marked the top for Dixons Carphone shares, around £5. The shares hit a low of 244p, before bouncing back, but the downtrend from the 2016 high remains intact. UK retail sales have held up well since Brexit, a point the firm alluded to in September, when it posted a 4% rise in like-for-like sales for the May – July period. But now cost inflation is on the rise, while margins on big ticket electrical purchases will be squeezed as non-UK firms raise prices.

Although the firm is trading at 11.2 times forward earnings, compared to a two-year average of 13.4, the outlook for retailers still looks grim. A rise in inflation will squeeze wages, which raises the prospect of either lower revenues from reduced sales or smaller margins as the firm grapples with cost inflation.

Dixons Carphone shares broke higher from 350p in November, having stalled at this key level twice in that month. The next target would be the 200-day moving average (currently 378p). However, the downtrend from the January high is intact, and a failure to break 378p would suggest a move back to 370p and then down to 300p.

Dixons Carphone price chart

Centrica

(Q3 trading statement on 15 December)

Utilities used to be all the rage among investors. In a world of record-low yields, the safe income streams from power and water companies were highly attractive. Centrica however has suffered from years of underperforming earnings. Dividends were cut in 2014 and 2015, providing a further reason for investors to abandon the shares. There isn’t much good news for Centrica, although the collapse of GB Energy should see it pick up some more customers. Instead, people continue to look to the yield of 6% as the reason for investing, with a relatively undemanding forward earnings multiple of 13 adding to the attraction.

For technical traders, we may finally have seen a base form above the 2016 low of 180p. Indeed, since May 200p has been the real floor. Now we need to see the price push back to 240p to maintain momentum. A failure to keep on moving higher leads to a possible test of 200p and then 180p. 

Centrica price chart

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