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Earnings look ahead – Petrofac, Ladbrokes Coral, Restaurant Group

A look at company earnings next week.

Ladbrokes Coral
Source: Bloomberg

Petrofac (half-year results 30 August)

Everything Petrofac does will occur in the shadow of the fraud investigation currently conducted into the company. It has a strong order backlog, which stood at $14.3 billion at the end of last year, and this will at least help to tide the firm over in the difficult period to come. The real danger remains that it will see the number of contracts it manages fall as renewals fail to come through. This would hit revenues, and then the balance sheet. In all honesty, the business update will play a distant second fiddle to any news on the Serious Fraud Office (SFO) investigation.

The current range for Petrofac is 411p to 488p, having held since mid June. With so much negative sentiment hanging over the stock the 500p level would appear to be the limit of the upside at present. Below 411p support at 345p comes into play. 

Ladbrokes Coral (half-year results 31 August)

Having only recently emerged from its own mergers and acquisitions (M&A) activity, Ladbrokes has been plunged into a new battle, this time with rival GVC. Although the talks broke down, the impending government review into betting terminals, which could see the maximum stake cut drastically, could mean that GVC will return in due course. Earnings growth forecasts for Ladbrokes are healthy, with growth of 73% expected in 2017 and 27% in the following year. The digital business also continues to power ahead, with net revenues up 17% in the first half of this year. Still, the government review continues to hang over the firm like the sword of Damocles.

Since topping out in August last year, we have seen Ladbrokes record a series of lower highs and lower lows. The most recent rally carried the shares to 131p before falling back, and now we look to see if they can break the 110p support area from 12 July. If they manage this then the 2015 rising trendline will also be gone. A move back above 131p would negate the downtrend. 

Restaurant Group (half-year results 31 August)

Restaurant Group has yet to rediscover a magic formula to entice people back to their offerings in the way that seemed so easy just a few years ago. It continues to chop and change menus and offerings at its chains, and while the first quarter saw an improvement in sales, it needs to post another three months of improvement to avoid seeming like a flash in the pan. A yield of 5.2% versus 3.1% for comparable firms is not a positive, but rather a warning that a cut to the payout could be on the way if the firm needs to embark on a fresh round of cost-cutting.

It is hard to get particularly enthusiastic about the shares, given that they have essentially traded in a range of 281p to 387p over the past ten months. Momentum has recently stalled at 360p, and from the looks of the moving average convergence/divergence (MACD), which is rolling over once more, a journey to 300p could be beginning again. 

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