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Earnings look ahead – Pennon, RPC, ZPG

A look at company earnings this week.

Zoopla
Source: Bloomberg

Pennon (first half earnings 29 November)

The value of utilities as safe stocks has taken something of a battering after Centrica's warning last week, when the shares dropped 15%. However, water firm Pennon is predicted to maintain its growth, with expectations of 2% this year, and over 10% for the following twelve months. In addition, dividends look to remain healthy, with yields of 4.8%, and over 5% in the coming years. And, unlike Centrica, these are well covered.

Regulatory scrutiny will still fall on the sector, but the big energy names will be the ones with plenty to worry about, rather than Pennon and its peers. Pennon is expected to report year-on-year earnings growth of 5%, to 24p per share. In a year when markets have rallied strongly, Pennon’s lack of performance is notable. However it continues to find support around £7.64, so as long as this holds a bounce back, £8.20 is possible. Below this £7.10, the 2015 low, is a possibility. 

Pennon price chart

RPC (first-half results 29 November)

Packaging firm RPC continues to seek acquisitions where it can, as it looks to gain market share in what is a fragmented industry. A recent update provided reassurance for a market concerned that the business was not moving in the right direction, and the shares continue to look interesting. At 13 times forecast earnings, and with a 2.7% yield, the shares do not look excessively priced.

Having been knocked back sharply in the first half of the year, the shares have recovered, with some recent weakness having been partially reversed. The next levels to watch on the upside will be £9.84 and £9.22, followed by a renewed push to £11.00, the highs from January.

RPC price chart

ZPG (full-year numbers 29 November)

ZPG is the owner of such sites as Zoopla and uSwitch, and is expected to report a 20% rise in revenues to £240 million, while earnings are forecast to rise 14.5% to £14.3 million. Its bid earlier in the year for rival, GoCompare, speaks to the firm’s ambitions. However, the concerns about a slowdown in the property market will worry investors, who will be fretting about whether it can maintain growth in its vital property market. At 19.7 times forward earnings the shares are trading below their two-year average of 22.4.

What was a steady rally from the beginning of 2016 has now turned into a steady downtrend, with rallies being sold. A new lower low at 326.6p is the first area to watch for support, while a push above 380p is needed to break the downtrend from the February highs and to create a new higher high.

ZPG price chart

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