Earnings lookahead – ASOS, Bellway, Unilever

A look at earnings next week.

Source: Bloomberg

ASOS (full-year results 17 October)

GBP’s weakness continues to drive performance at ASOS, which reported international growth of 54% back in April when it unveiled interim results. Smaller rivals such as boohoo.com have yet to make much of a dent in the alternative investment market (AIM) titan, and with sales guidance increased to a 30-35% range, more good new appears to be on the way. New investment, such as a second distribution hub in Europe, and a variety of website and logistic improvements are matched by technology upgrades designed not just to improve the shopping experience, but also to increase the average spend per customer. At 119 times current earnings there isn’t much room for disappointment, however, any earnings missed or a cautious outlook could prompt a period of heightened volatility.

The steady rise in ASOS since 2015 has seen the shares recover much lost-ground, but the sequence of higher highs and higher lows has been disrupted, with the price faltering and heading below £60.00. A downtrend from the May high continues to hamper progress, and we would need to see a break above £61.00 to be sure that the rally is back on in earnest. A drop back would encounter support at the rising trendline from the 2016 low, and it would require a daily close below the September low of £55.15 to confirm that a bearish move is underway. 

Bellway (full-year results 17 October)

An increase in the Help to Buy scheme, recently announced by the prime minister, should provide a further boost for Bellway shares; the scheme having already proven its worth in terms of improving earnings. Of course, the UK remains chronically undersupplied with houses, so demand will continue to be strong, even with an increase in the building rate. Volume growth of around 10% continues to support earnings, and while Bellway’s forecast average selling price of £264,000 is lower than a number of its peers, the extension of Help to Buy will mean it continues to benefit from first-time buyers entering the market. At 7.8 times forward earnings and a yield of 4.3% (and a well-covered one at that), the firm continues to look compelling.

Bellway currently sits at all-time highs. Each dip brings out more buyers, with the 100-day simple moving average (SMA) at £30.97 evidently the key area for buyers. Any pullback that stays above £29.66 is a higher low and maintains the uptrend. A drop could find support at £33.33, the top end of the recent gap higher, and then the bottom end at £32.89 comes into play. 

Unilever (Q3 results 19 October)

Unilever is still arguably in damage-control mode after Kraft Heinz’s opportunistic, but so far failed bid for the firm earlier in the year. Despite having returned 9% a year including dividends for the past twenty years, the giant feels compelled to reorganize, by reducing costs, buying back shares and raising dividends. Underlying earnings are expected to rise by 15% this year, and with further sales growth expected as it derives strength from recent high-value acquisitions. At 24.1 times earnings it is not cheap, especially when given a FTSE 100 price-to-earnings (PE) ratio of around 18 times, but it has a compelling story behind it.

The spike higher yesterday means the shares are on course to challenge the all-time high from August at £45.49. As we have seen over the past few months, dips continue to be bought. £42.06 would provide an area of support, being the September low, and then down to £40.86. A breakout above £45.49 puts the shares in new all-time high territory. 

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