Earnings look ahead – InterContinental Hotels, British American Tobacco, William Hill

A look at earnings released next week.

William Hill
Source: Bloomberg

InterContinental Hotels (full-year earnings 20 February)

InterContinental Hotels is expected to report an 18% rise in earnings for the year to $2.39 per share, while revenue rises 4.8% to $1.8 billion. The former has beaten estimates for eight successive years, although for the latter it is just four out of the last eight. Growth in its mid-price US hotels continues to drive improvement, and this rise in profits is also expected to see dividends boosted as well. At 23.2 times forward earnings, the stock is above the two-year average of 21.5, but a yield of 2.1% helps to offset this. The stock tends to see an average move of 2% on results day, with current options pricing suggesting a 0.86% move.

The rally here goes on, having recovered strongly from the August lows. A dip below £44.90 in early February was followed up by a strong rebound, pushing the price back above the 50-day simple moving average (SMA) at £46.69. Further gains will target the recent high at £49.44. A failure to maintain momentum would suggest a move back to £44.90, and then potentially down towards the rising trendline from the June 2016 lows.

British American Tobacco (full-year earnings 21 February)

Earnings of 310p per share are forecast, up 42.2% year-on-year, while revenue is expected to be 77% higher, at £26.17 billion. British American Tobacco has beaten five out of seven times on earnings, and missed four out of the last seven on revenue. Earnings for 2018 are expected to have been boosted by around 6% thanks to the US tax cut, with the bonus invested in new products. Increasing legislation makes the shares less attractive, and the threat of further clampdowns helps explain why the shares trade at 14.1 times forward earnings, below the two-year average of 17.1. Results day tends to see an average move of 1.13%, with current pricing pointing towards a 3.3% move.

The shares have tumbled through a number of support levels, only finding rest at £43.78. A bounce from here would test £45.09, £45.95 and then £46.78. A further decline tests the November 2016 low at £42.21.

William Hill (full-year earnings 23 February)

The betting firm is forecast to see 11.3% growth in earnings, to 24.7p per share, on a 6.4% rise in revenues to £1.7 billion. It has missed on earnings in five of the last eight years, but beaten earnings in seven of the last eight. The average one day move on earnings day is 3.5%, with current pricing suggesting a 5.5% move. William Hill's recent trading statement said that the year was ahead of expectations, with four months in a row where sport results favoured the bookmaker over clients. The one worry is the review of the Australian business, given the credit betting ban there, and a possible consumption tax being introduced in some states.

322p marks the high for February, with several attempts to break higher defeated. Above here, the 2018 high at 345p is in sight. Meanwhile further declines will test 285p and then down to 239p.

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