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Earnings look ahead: Greencore, Ferguson, Berkeley Group

Food company Greencore, plumbing supplies firm Ferguson and housebuilder Berkeley Group publish earnings next week.

Berkeley Group
Source: Bloomberg

Greencore (full-year results 4 December)

Greencore is expected to report earnings per share of 14.8p per share, down 4% over the year, while revenue is expected to rise 9.3% to £2.54 billion. The firm has beaten on revenues in five of the last eight updates, and beaten earnings forecasts in seven of the last eight. The average move on results day is 6.5%. The shares trade at 11.8 times forward earnings, below the five-year average of 14.5, and comfortably below the sector average of 16.

The firm’s disposal of its US business means the focus will be how the UK division is performing. Investors will be keen to hear what the firm plans to do with the cash from the US sale. The firm had moved into the US in late 2016 in order to boost growth and help move away from a reliance on the UK. Now that the US division is sold, the firm has to provide a decent update on how it will avoid becoming a prisoner of the UK’s difficult economic outlook.

Greencore shares have risen steadily from their nadir in March, but this only marks a retracement from a much wider downtrend over the past two years. Rising trendline support comes into play around 185p. A break below this could suggest that the overall bearishness is reasserting itself.

Ferguson (Q1 update 4 December)

Ferguson's first update for its financial year comes after the shares have dropped to just 12.1 times forward earnings, against a five-year average of 15.2. The firm faces a tough outlook in the UK, where pressure on margins arising from higher costs has led to a branch closure programme. Increasing competition means that the firm will struggle to boost profits as it looks to maintain market share. Fortunately the strength of its US division will help compensate for UK weakness, but the downturn in US housing data sends a signal that tougher times may be on the way here as well.

One of the great uptrends of the past two years continues to come unstuck. The price has rebounded from the November lows, but any rally that stays below £54 is still a lower high and thus a possible selling opportunity. Below £47 the £43.60 area comes into play.

Berkeley Group (first-half results 7 December)

Berkeley Group has struggled of late, along with the rest of the sector, thanks to ongoing concerns about the viability of UK housebuilder stocks at a time when the UK’s future is so much in doubt. Berkeley’s focus on London, previously a strength, has now become more of an Achilles’ heel, as prices in the capital begin to fall for the first time since 2009. The sector is trimming its ambitions, hoping to ride out the storm until better times come along.

Berkeley currently trades at 9.3 times forward earnings, broadly in line with its five-year average of 9.7. However, while this is cheap compared to the 2018 high of 13.5, the tough outlook of rising prices and weakening demand means the valuation may not yet take into account all the bad news.

Berkeley’s shares have been hit hard over the past few days, and have returned to the October low just above £32. If this holds another bounce towards trendline resistance around £36. Below £32, £30.44 and £29.26 are areas of possible support.

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