Earnings look ahead – Rio Tinto, Burberry, Whitbread

A look at three trading statements scheduled for next week.

Burberry
Source: Bloomberg

Rio Tinto (Q4 update 16 January)

Iron ore's recent surge will likely help burnish Rio Tinto's statement. Although, we’ll have to wait for the full numbers for a real assessment of just how well the firm has done after the rally in prices. Meanwhile, a solid balance sheet and manageable levels of debt help to make the shares attractive. A 5.1% yield remains competitive in the broader FTSE 100, and at 11 times forward earnings there seems to be plenty of upside in the valuation case.

The recent surge has seen Rio Tinto hit its highest level since 2011. Pullbacks have been firmly bought, so we would look for similar dips as more attractive entry points, rather than chasing the current rally. Support is possible at £38.32 and then £37.17, while on the upside, the highs of 2011 at £46.23, and then £47.18, come into view. 

Rio Tinto price chart

Burberry (Q3 update 17 January)

Led by its new CEO, Marco Gobetti, Burberry is going through a period of change, as it looks to move toward a more ‘super luxury brand’ position. Former CEO, Christopher Bailey, a man that drove Burberry forward in recent years, will leave at the end of 2018. Combined with this, the firm promises to change its customer experience, its products and its communication. Thus, this upcoming statement could provide some further information on how this transformation is progressing. At 21.5 times forward earnings, the stock is expensive relative to its sector, which trades at 16.3 times forward earnings.

Burberry’s 2016 climb broadly flatlined into 2017, despite a rally above £20.00 in November. The shares have traded in a tight range since then, bounded by £18.40 on the upside and £17.11 on the downside. A break higher targets £19.29 and then £20.23, or for a break lower we would look for a move towards £15.42.

Burberry price chart

Whitbread (Q3 update 18 January)

Whitbread will provide another view of consumer spending when it updates the market this week. Its various brands provide a useful overview of the UK services sector, with the group having done well out of the UK’s love of coffee and the need for cheap but comfortable hotels. Earnings per share (EPS) have grown by almost 90% in the past five years, and good economies of scale continue to bolster margins. The firm continues to resist the siren calls to break up its various businesses into their component parts. At 14.3 times forward earnings the stock is in line with its average valuation over the past two years, and remains relatively cheap.

Whitbread has been rangebound since mid-2016, failing to participate in the broad market rally. The shares have twice faltered recently below the October high of £40.77. Further declines below £38.00 will target the £35.00 low from November. Above £40.77, the £43.33 level comes into play. 

Whitbread price chart

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.