Earnings look ahead – Sainsbury’s, Superdry, Persimmon

A look at company earnings next week. 

Source: Bloomberg

Sainsbury’s (Q1 trading statement 4 July)

Recent Kantar data has pointed to a small loss of market share for the past three months, but proposed merger partner Asda at least saw an increase, so the news is not entirely bad. While the possible merger will lurk in the background as the latest figures are discussed, Sainsbury's still needs to show that it remains competitive and is continuing to successfully integrate Argos into its stores. At 15 times earnings, Sainsbury’s trades well above its five year average of 11.7, and given the recent run-up in the share price it may well be subject to some profit-taking following these numbers.

Sainsbury’s has seen its shares gain almost 50% from the late March low, fired up by news of the potential deal with Asda. The 2014 high at 327p is now in sight, while a drop back would likely find support at 294p and then 283p.

Superdry (full-year earnings 5 July)

Superdry’s pre-close statement revealed that it had been hit by tough weather conditions in Europe, disappointing investors who had hoped for stronger performance. A cut in prices hit margins, and the cut to revenue guidance illustrates that the firm is not immune from the ongoing crisis on the British high street. At just 10.6 times earnings, the shares are remarkably cheap compared to the long-term average of 17.5 times, while it trades at 35% discount to its peers, versus a two-year average discount of 10%. Superdry is expected to report earnings of 94.9p per share, and revenue of £873 million, up 13% and 16.2% respectively over the previous year.

The decline from the 2018 has been brutal, with the sharp drop on 10 May just part of a much broader decline. In a worrying sign, the shares dropped below the £11.70 support level that held in early 2016. A failure to close back above this level suggests that the sellers will remain in control. The low valuation highlighted above may tempt in some buyers, but resistance is to be found around £12.84 and then £13.66.

Persimmon (Q2 trading statement 5 July)

The drumbeat of news regarding UK house prices suggests that the easy years may be over, a point made by Berkeley Group recently, as it warned that London prices would continue to weaken. Still, demand remains solid and while inflation may erode margins to some degree, the sector still looks attractive. Persimmon’s 9% yield is well above its two-year average of 6%, while at just 9.3 times earnings it is sitting on a remarkably undemanding valuation.

The shares have endured another pullback from the recent high, but the steady trend from the June 2016 lows is still intact. A move back above the recent £25.80 peak would be seen as bullish, and put the shares back on course for £26.55 and then £27.93. A close below £24.50 is needed to put a real dent in the bullish technical view. 

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