Earnings look ahead – Ashtead, Inmarsat, Legal & General

A look at UK company earnings next week.

City of London skyline
Source: Bloomberg

Ashtead (full-year earnings 7 March)

Ashtead seems ideally placed to benefit from Donald Trump’s stimulus programme in the US, even if we still have precious few details on the actual stimulus. Nonetheless, the firm’s big US operations have already fired up investor enthusiasm, with the shares surging since the election. The shares have delivered an increase in earnings in each of the last five years, while its strong record of dividends is matched by a dividend coverage ratio of four times earnings. Watch for further comment on the potential opportunities offered in the US as a consequence of the Trump stimulus.

The shares have barely stopped since the election, reaching a new all-time high at the beginning of March. We may see some profit-taking following the results, but so long as the price doesn’t breach £14 it seems likely Ashtead will remain an investor favourite. Some near-term support may be found at the 50-day simple moving average (SMA), currently £16.30.

Inmarsat (full-year earnings 8 March)

Inmarsat’s future depends either on a takeover or success with its in-flight WiFi technology. The firm has been identified as a possible target for EchoStar, a major player in the satellite market, while its push into in-flight WiFi could yield great success, with IAG and Lufthansa both potential customers. A 4,9% year-on-year fall in revenue from the key maritime segment has put investors on watch for further problems, while the ostensibly attractive yield of around 6% is diminished by the fact earnings may not cover the payout this year. In addition, it still carries around $1.9 billion in net debt that needs clearing. The firm will need to spin a good tale on the coming year if the shares are not to suffer.

At the beginning of 2016 the shares were over the £11 mark. Since then the downtrend has been relentless; rallies have been furiously sold, with the latest push to £7.20 bringing out more bears. If the weekly pivot at £6.74 is lost then £6.06 and £5.90 come into play. 

Legal & General (full-year earnings 8 March)

Legal & General’s heavy UK focus made Brexit a particularly tumultuous event. However, the shares have recovered since the vote, with the steady performance of the UK housing market helping to reassure investors. Overall, the current valuation of around 14 times earnings does not look excessive, especially given the excellent dividend yield of 6%.

The share price has now pushed above its early January high of 252p, with 259p and then 271p the next targets. However, the rally also looks overstretched, so a pullback is eminently possible. However, so long as the price does not fall below the February low of 231p the uptrend remains in place.

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