Earnings look ahead – Dignity, Prudential, Hikma Pharmaceuticals

A look at company earnings next week. 

Source: Bloomberg

Dignity (full-year earnings 14 March)

Dignity has begun to report tougher trading conditions, as consumers start to look for lower prices in the funeral sector.

Earnings are forecast to halve during the year, as the firm cuts prices to remain competitive. At 12-times earnings, the shares are much more interesting now than at the 20-times seen in previous years. A dividend of 3% looks interesting, and is well-covered by earnings. However, the net debt of over £500 million does provide some cause for concern. Dignity will have to work hard to regain business and pay down debt, a course that will result in a hit to earnings.

There has been little good news for Dignity, and while the share price has rallied of late, it remains a fraction of the levels seen in mid-2017. The first target is £12, being the top end of the recent gap lower, and then on to £15.79. The first area of support comes in at £7.36, and then on to £5.74p and 484p.

Prudential (full-year earnings 14 March)

It will be interesting to see if Prudential's numbers see a similar reaction to UK-focused peers Legal & General and Aviva.

These reported good numbers, but the reaction was broadly negative. It looks like Amazon is going to park its tanks on the insurer’s lawns. Prudential may get away with less of an impact from this for now, since its Asian exposure makes it well-positioned to benefit from economic growth in these countries, where Amazon’s influence is (for now) smaller. Earnings are expected to rise by 10% this year and 9% in the following, and at just 12-times earnings, the shares are not excessively priced.

A new record high for Prudential back in January has been followed up by a decline into support around £17.38. A bounce from there has run out of steam at £18.64, but a break above here would target the January high at £19.90. Below £17.38, £17.31 comes into play, and then £17.13.

Hikma Pharmaceuticals (full-year earnings 14 March)

Hikma's concerns are very similar to the rest of the sector, namely those covering the price headwinds of generic products.

Investors should expect an update on the generic version of its Advair drug, with the timing of the launch still uncertain. It may be that growth in the injectable division and branded franchises will help burnish performance somewhat. Finally, an improvement in branded sales should be seen, as both shipment delays and the devaluation of the Egyptian pound seen in the first half wear off.

Further falls for Hikma bring £6.02 and £5.36 into view. Meanwhile, a rally will target £10.82 and then £11.60. Rallies have been firmly sold for 18 months now, with little sign of a fundamental change in the story. 

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