Earnings look ahead – Ashtead, Berkeley Group, Dixons Carphone

A look at company earnings next week. 

Carphone Warehouse
Source: Bloomberg

Ashtead (full-year earnings 19 June)

Ashtead’s prominence in the US continues to be a boon for the firm thanks to the strong economic growth in America, and its push to acquire more market share should boost returns further. Cash flows have continued to rise, and while for now the extra money is being used for expansion, it could be cut back if debt starts to become too much of a burden. A weaker dollar of late has borne down on performance, but that has become less of a concern over the past couple of months. Meanwhile, at 13.5 times earnings the shares are not too excessively valued. Ashtead is expected to report earnings of £1.31 per share, up 26% over the year, and revenue of £3.67 billion, up 15%.

Once again there seems no stopping Ashtead. The price has consolidated in the £23-£24 range, and looks set to push above its recent high at £24.41. Near-term support comes in at £22.85, with £21.84 below this. Any serious weakness would still represent a buying opportunity. 

Berkeley Group (full-year earnings 20 June)

The recent trading statement knocked 5% off the share price for Berkeley Group, since a performance in line with expectations was hardly likely to encourage excitement. However, the rise in the shares since then suggests investors are still confident on the outlook. The lack of an interest rate rise in the UK indicates that the Bank of England (BoE) is in no hurry to dampen the housing market through higher borrowing costs, removing one worry for the firm. A 14.7% rise in earnings per share to £5.18 is expected, while revenue is forecast to dip 0.4% to £2.7 billion. At just eight times forward earnings, the shares do not look aggressively valued. 

A fresh high at £43.37 confirms the strength of investor sentiment, as the shares recover from their first quarter (Q1) weakness. While it has dropped below the December high of £42.08, this should not unduly concern longs; the sequence of higher lows and higher highs remains firmly intact, with a move below £36.37 needed to suggest that a longer period of weakness is on the cards.

Dixons Carphone (full-year earnings 21 June)

The firm is expected to report a 24% fall in earnings per share, to 25.5p, while revenue only slightly dips to £10.6 billion. The full-year numbers will be overshadowed by the recent data breach, with plenty of focus on how Dixons Carphone plans to tighten up security. Much of the bad news has already been factored in, thanks to profit warnings before the previous full-year results and the December first-half figures. Management changes also continue to dull sentiment towards the shares, and the firm may need to announce the closure of more Carphone stores in order to convince investors that cash generation will improve over the longer term.

The rally above the downtrend line from the 2015 high must have seemed like a textbook move at the end of May, pointing to further strength, but it proved to be a false dawn. The 29 May trading update knocked 20% off the share price, indicating that there is still more pain ahead. While the shares rebounded slightly, any rally towards 220p still constitutes a selling opportunity.

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