Earnings look ahead – Dixons Carphone, Tullow Oil, Serco

A look at company earnings next week.

Dixons Carphone
Source: Bloomberg

Dixons Carphone (full-year earnings 28 June)

The recent slowdown in consumer spending, highlighted by DFS, may have hit Dixons Carphone as well, given the big ticket nature of the products sold by the group. It will be hoped by many that Dixons remains immune, but with inflation on the up and wages failing to grow, the outlook does not look particularly rosy. Online rivals, Amazon chief among them, also make life difficult, but the firm is still expected to see an 8% increase in earnings, to over £500 million.

The shares have steadily declined since the beginning of 2016, with each rally being smaller. However, 294p continues to hold as support, so another bounce from here would challenge the declining trendline at 330p. A further rally would target 372p and then 391p.

Tullow Oil (Q2 trading statement 28 June)

Tullow Oil's exposure to oil fields in Ghana, which are already producing free cash flow, and further developments in fields in Uganda and Kenya, continue to make the firm attractive, even with the ongoing fall in oil. Further exploration capacity into 2019 is aimed at being productive around $40 per barrel, while further asset sales are possible next year, boosting its plans to move back to its roots as a frontier explorer.

The drop since the beginning of the year has been brutal, with no sign of stopping just yet. A rally would need to clear 185p to break the top end of the descending channel. Areas to watch for resistance over the longer term would be 216p and then 242p. Otherwise, the next low would be the 2016 bottom at 116p.

Serco (first half trading update 30 June)

A recent Australian contract win to run Australia’s largest prison exemplifies the turnaround at Serco. Rupert Soames, the CEO, has done a good job of stabilising the firm, with stabilisation in margins. However, these are not expected to return to the hefty levels of 2012, when operating margins on an adjusted basis were 6.4%.

Since gapping lower in February, the price has found a bottom around 110p, rallying modestly. A break above 122p would then target the bottom end of the February gap lower, at 131p. A loss of 110p would target 95p and then 90p.

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