Earnings look ahead – BHP Billiton, Persimmon, WPP

A look at company earnings next week.

BHP Billiton
Source: Bloomberg

BHP Billiton (full-year earnings 22 August)

BHP is expected to report earnings of $1.37 per share, while revenues are forecast to rise 25% to $38.7 billion. The firm has done its best to consolidate its financial position, aided by an improvement in commodity prices. However, now that the tough period for miners is at an end, investors will be looking for clues on either new operations or increased capital return. BHP’s diversification remains one of the key elements of its investment case, which along with rival Rio Tinto continues to put it ahead of competitors.

BHP shares peaked around £14 in August, but since then they have begun to fall back. The question now is whether they can repeat the June trick and bounce off the post-January 2016 rising trendline, which could see a bounce from nearer £12. A break of £14 would clear the way to retest the January high at £15.18. 

Persimmon (first-half earnings 22 August)

Persimmon is expected to surpass forecasts on both revenue and profits at its first half results. Earnings are expected to rise 15% to £2.28 per share, while revenue is expected to be 8% higher at £3.38 billion. A healthy balance sheet and a commitment to returning cash to shareholders continues to boost the appeal of the firm. At 10.9 times forward earnings versus 16 for competitors, the shares also seem to be attractive on valuation grounds.

A steady dip into June and the 100-day simple moving average (SMA) currently at £23.58, proved to be a good buying opportunity for the shares. A new high of £25.68 was set at the beginning of August, but a retracement to the steady rising trendline from the June 2016 lows could see a bounce materialise around £23.60.

WPP (first-half earnings 23 August)

The recent update from WPP pointed towards a more difficult trading environment than hitherto, with a profit warnings from a Japanese peer also hurting sentiment. Dentsu Aegis warned that weaker trading at its international division would result in poorer performance, with consumer goods firms cutting back on advertising budgets. WPP is more exposed to the sector than its rival, so some caution is warranted. However, with a forward price-to-earnings ratio (PE) of 12.3 versus a two-year average of 14.2, and a higher dividend yield than for its peer average (3.5% vs 2.3%), the firm continues to appeal on a fundamental basis.

WPP continues to be under pressure, having lost its longer-term trendline in February. A rally to the 200-day SMA in June was followed by a swift drop. Support could be found around the July lows at £15.31, or down to the June 2016 low at £14.69. A daily close above £16 would clear recent resistance and leave the way clear for a rally towards £17.50. 

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