Earnings look ahead – Vodafone, Shell, BT

A look at company earnings next week.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2018-01-26T12:15:02+0000

Source: Bloomberg

Vodafone (Q3 trading update 1 February)

A key element in the Vodafone investment case is its dividend, and now that the firm has come through a period of investment and transition, the risk of a cut is decreasing markedly. Rising free cash flow provides another attraction, while the firm recently boosted its full-year earnings forecast, with income expected to rise 10%, from a previous estimate of 4-8%.

In an environment populated by many great uptrends (see Shell, below), Vodafone’s chart generates a degree of ennui, at least in this analyst’s mind. However, the rally into the first half of January did at least break out from the May 2017 high, even if it still failed to clear the 2016 high at 240p. Momentum is now oversold, so a bounce is possible, with longer-term support at 215p, and then 205p.

Vodafone chart

Shell (full-year earnings 1 February)

As oil continues its ascent, oil majors are coming into favour once more. Shell is forecast to see headline earnings double over the year, rising to $1.92 per share, up 108%, and revenue to rise 24% to $291 billion.

This would mark the first year of growth in earnings since 2014, while fears of a dividend cut have receded, as free cash flow rebounds along with the seemingly-invincible rally in oil prices. A share buyback programme, designed to purchase $25 billion of shares by 2020, is another indication of management’s confidence in cash flow. A yield of 5.8% is notably higher than the comparative average of 4.3%, while analysts continue to upgrade their targets for the shares, with ten boosting their price targets in the past month.

Shell has come a long way from the 2016 nadir of £12.50 a share. The rally goes on, with a fresh higher high of £25.80, crucially above the 2014 high, confirming the uptrend. A modest pullback since then has found support at £25.00. Below this, and below the November high of £25.80, the price may find support at £23.13.

Shell chart

BT (Q3 earnings 2 February)

Earnings before interest, taxes, depreciation and amortization (EBITDA) at BT is expected to fall by 1.7% for the third quarter (Q3), to £1.84 billion. However, while revenue is forecast to be flat at £6.1 billion, adjusted earnings are expected to be 0.5% higher, at 6.6p per share.

For BT shareholders, Amazon is becoming an increasing worry, as the shopping giant looks to muscle in on the traditional battle between BT and Sky over Premier League football rights. This has already been an expensive battle, and would be even more so should Jeff Bezos, Amazon CEO, weigh in. Furthermore, costs are forecast to rise, as the firm has to upgrade the UK’s fibre-optic cable network. Still, the dividend yield of 5.9% is above its peers’ 4.4% average, while its enterprise value of 4.9 times earnings is cheaper than the competitor average of 6.8.

In the ongoing downtrend from the 2016 highs, BT shares clocked up another lower high below 280p. However, if the shares can hold above 260p, then they create a higher high from the 2017 lows at 240p. Nonetheless, it needs a close above 280p to vaguely indicate a rebound could be in the offing.

Earnings look ahead – Vodafone, Shell, BT

Vodafone (Q3 trading update 1 February)

Vodafone chart

Shell (full-year earnings 1 February)

Shell chart

BT (Q3 earnings 2 February)

BT chart

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