Earnings look ahead: Sports Direct, TUI and Stagecoach

This week sees earnings updates from retailing behemoth Sports Direct, travel firm TUI and transport operator Stagecoach.

Sports Direct bag
Source: Bloomberg

Sports Direct — first-half earnings due 8 December

It has been an atrocious year for Sports Direct shares, as the harsh light of investigation into the firm’s working practices causes one of the great bull markets to come to a terrible end. From £7.40 at the beginning of December, the share price collapsed to 250p by the summer. Since then, it has recovered to above 300p, but a fresh investigation in late November suggests the firm is not entirely out of the woods.

First-half earnings are scheduled for 8 December, but are not expected to make pleasant reading. Revenues are expected to rise 9.5% year-on-year, but falling margins are likely to make a serious dent in earnings, which are expected to fall by 24% to 16.5p per share.

At 15.3 times forward earnings, the shares no longer look ‘bargain basement’ cheap, as they did in the summer. A company like Sports Direct will not lose its dominant position overnight, but it may face an uphill task reclaiming customers. For the long-term, the shares might look compelling, especially if Mike Ashley begins to look at taking the firm private.

The shares have rallied strongly off the lows of the year, and have arguably formed a good base above 250p. Now we need to see them break the November highs of 330p. The consolidation appears to be over, with only a move below 250p negating the longer-term bullish case. 

TUI — full-year earnings due 8 December

Full-year earnings from TUI arrive next week, and we expect to see adjusted earnings fall 0.8% to £1.03 per share, while revenues fall 6.1% to £18.78 billion. Terrorism fears have hit popular destinations, but over the summer the company has looked to broaden out its offering with two new cruise ships and five more hotels. In the UK, summer trading saw a good performance, as revenues and bookings rose 5% on the year.

TUI shares have got progressively cheaper from a valuation perspective since the beginning of 2015, trading at just 10.9 times forward earnings, well below the average of 13.1 times. Defensive sectors such as consumer staples have been very much in vogue for their income properties, but a yield of around 5% is something that many investors cannot ignore.

TUI shares bottomed out in June following the Brexit vote, rallying all the way to £11.50 before it fell back. In November the shares found support at £10, so arguably a rising trendline is now firmly in place. A bounce from here will head to the descending trendline off the 2016 high near £12.86. 

Stagecoach — first-half earnings due 7 December

Transport operator Stagecoach saw its shares go from around 105p in early 2009, to the dizzying heights of over 400p by mid-2015. Since then however, the price has dropped back to 200p, with most of that damage occurring since December 2015. At just 9.2 times forward earnings, from a previous 14.2 times in mid-2015, the shares are definitely in the value camp.

A recovery in oil prices could see a shift back to public transport for some commuters, which would help boost Stagecoach’s trading. In addition, a refinancing of its debt, although incurring a £23.3 million one-off charge, should help the firm to save money in coming years.

From a charting basis, the shares have established a firm base around the 200p mark. Although they have yet to gain upward momentum, a move to 230p would be regarded as more bullish. A drop through 195p would open the way to the 2010 low around 160p. 

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