Earnings look ahead – WHSmith, Workspace Group

A look at company earnings next week.

WHSmith
Source: Bloomberg

WHSmith (Q3 trading statement 6 June)

This week’s trading statement from the long-lived British retailer, WHSmith, comes after it was voted the worst retailer on the high street by ‘Which?’ magazine readers, a title it has held for eight years. As has been the case for years now, the lacklustre performance of the high street division is more than compensated for by the stellar performance of its travel arm. Further expansion in Madrid and Rio de Janeiro confirms the ambitious growth plans, in particular with respect to the latter as it opens the door to more outlets in the Americas. The international division helps to explain why it has comfortably outperformed in the General Retailers Index, up 12.5% over the past 12 months against a 4% drop for the broader index. At 17 times forward earnings, it trades slightly above the five-year average of 15.4.

A rally from April into mid-May has run out of steam, as the area around £20.50 provides resistance. Indeed, we saw a lower high from the February high, with sellers pushing the price lower. Further losses would target £18.93, £18.54 and then £18.10. A move above £20.80, and ideally above £21.00, is needed to suggest a longer-term bullish move.

Workspace Group (full-year earnings 6 June)

Workspace Group is forecast to report an 18% rise in revenue over the year to £128 million, while earnings before interest, taxes, depreciation and amortisation (EBITDA) is expected to rise 18% to £76.95 million. The shares have recently been upgraded by brokers, noting that further expansion remains likely, despite the overhang of uncertainty created by Brexit. The firm has missed earnings estimates in three of its last ten announcements, while they face the maturity of £50 million in debt in the next 12 months, or 21% of current outstanding debt.

Since breaking out from the February high, the shares have continued to climb, trading within a short-term ascending channel since the beginning of May. The upside level to watch remains at £11.47, while short-term dips towards £11.00 may find buyers. Longer term, a deep retracement towards £10.00 still leaves rising trendline support from the October 2016 lows in place.

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