Earnings look ahead – Hargreaves Lansdown, Admiral Group, Hikma Pharmaceuticals

A lookahead to company earnings next week.

Hikma Pharmaceuticals
Source: Bloomberg

Hargreaves Lansdown (full year results 15 August)

The fund supermarket has had a strong few years as the popularity of online investing has soared and it benefited from high profile new stocks listings like Royal Mail. Revenue and profit have been roaring higher. This time round, Hargreaves Lansdown has already announced most of its key numbers ahead of the full results. Pretax profit was up 21% to between £256 million and £266 million, and net assets under administration rose 28% to £79.2 billion. It released the numbers early because it wanted to show investors that it was performing strongly at the same time as it had to cancel a special dividend because it needs to retain a further £50 million in its capital base. The Financial Conduct Authority (FCA) told Hargreaves it had to bolster its cash buffer due to its strong growth and increased complexity. That came just weeks after the regulator said it will launch a study into whether online fund platforms are providing good value for money for investors. The future focus seems to be on the impact of regulatory scrutiny.

Taking a look at the chart, it is clear that we have seen an ascending channel in play over the past year, with the price rallying back into the middle of that ascending range this week. We need to see a break above £13.87 to solidify the expectations of a move back into the £14.50 region. Until then, the weakness we have seen this week could point towards a retracement before we turn higher once more. A break below £12.58 would bring about a bearish outlook.

Admiral Group (first half results 16 August)

Admiral shares had a strong start to the month after peer Direct Line reported a strong 9.5% rise in first-half profit due to rising auto insurance premiums. Premiums are rising again after several years of being flat or even falling. The average price of UK motor insurance hit a record high in the second quarter of the year, driven by new rules for personal injury claims and a rise in the insurance premium tax, the Association of British Insurers said last month. However, the good news may now be priced into Admiral’s shares, and a weaker-than-expected performance could undermine the gains made so far this month.

Admiral shares have broken higher from a three-month period of consolidation, with the price subsequently coming back to test £21.28 as new found support. Keep an eye out for this area to potentially hold to push the price higher once more. Ultimately we are trending upwards and there is a strong likeliness that we will see further gains to come. A break below £21.28 would point towards a retracement of the rally from £19.77, yet it would take a break below that level to make the longer term picture bearish. Until then whether we break higher, or retrace first, a bullish outlook remains in play.  

Hikma Pharmaceuticals (first half results 17 August)

After a strong start to the year thanks to positive news on approvals, licenses and new product launches, Hikma’s shares have been in a downtrend since last March. That started after JP Morgan downgraded the stock due to concerns that Hikma’s planned new generic rival to GlaxoSmithKline asthma blockbuster Advair would only give a temporary earnings boost because of price deflation and competition. The pain was compounded in May when the US Food and Drug Administration (FDA) didn’t approve its asthma drug application and Hikma admitted approval was unlikely this year. Earlier this month Morgan Stanley downgraded the stock to ‘equalweight’ from ‘overweight’ citing deflationary headwinds in the company's generics division and increasing competition in injectables. Hikma appears to have some work to do to convince investors about its growth potential. An update on the asthma drug situation may help, but the company may not be in a position to provide this yet.

The downtrend evident over recent months has continued apace recently, with a strong move lower on Tuesday leading to the lowest level since early 2014. This is expected to continue as long as the price does not break back up through £14.57. Any extended rebound would bring the 50-day simple moving average (SMA) and trendline resistance into play once more.

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