Earnings look ahead – Tesco, WH Smith, ASOS

A look at company earnings this week in the UK. 

Source: Bloomberg

Tesco (full-year earnings 11 April)

Tesco's full-year numbers will provide a chance for the firm to give more clarity on how it plans to take advantage of the Booker acquisition. Booker’s expertise in the wholesale market, and the potential for further growth in the sector now that it has Tesco’s financial muscle, means that the firm should be well-placed to expand further.

Current trading has remained strong, and there are signs of margin increases that will help boost free-cash flow (which is already recovering). Tesco is expected to report earnings per share (EPS) growth of 58%, to 10.7p, while revenue is forecast to rise 2.5% to £57.34 billion. The average move on results day is 3.8%, with current options pricing suggesting a move of 3.15%, according to Bloomberg.

Tesco shares have recovered strongly from the November lows, with February’s dip towards 190p bringing out the buyers. A higher low at 200p suggests buyers are still active, and further gains would suggest a move back towards the 215p-220p zone. Support comes in at 190p, with a bigger decline running into rising trendline support from the June 2016 lows.

WH Smith (first-half earnings 12 April)

The recent trading statement from WH Smith reiterated the state of affairs at the firm, namely that the travel division continues to provide the growth, with two-thirds of group profits coming from the division.

A weaker performance in the high street division was to be expected, and this should be reflected in first-half numbers. While the traditional town shops will continue to struggle, the travel part of the business continues to provide a reason for optimism. Revenue is expected to rise 1.5% over the year, to £652 million.

WH Smith shares hit a recent record high at £23.50 at the end of 2017, but since then rallies have been firmly sold. However, the share price found support around the £18.93 level. It then bounced but created a new lower high around £20. A failure to break above £20 would suggest a move back towards the £19 support level, and then below thus £18.10 comes into play.

ASOS (first-half earnings 11 April)

International growth, particularly in the US, and the ongoing shift to online shopping, should continue to benefit ASOS. New brands and the introduction of innovations such as a ‘try before you buy’ payment option and same day delivery during quarter one (Q1) should help growth, while advertising appears to be providing an effective means of driving growth both in the UK and France.

While ASOS continues to trade on a forward price-earnings (PE) ratio of 72 (much higher than its staid bricks and mortar competitors) the potential for growth appears to be justified, although there will be swift punishment if the company fails to meet forecasts. Headline EPS are expected to rise 54% to 40.7p, while revenue is forecast to be 27.7% higher at £1.16 billion.

March 2018 saw ASOS shares surpass their 2013 high, and having fallen sharply back since then, they have begun to recover. The price found support around £68.33, and with momentum so oversold, a rebound looks likely. A failure to hold £68.33 would bring the £66.39 and £64.90 levels into play. 

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