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Earnings lookahead – Lloyds, GlaxoSmithKline, RBS

A look at earnings next week.

Source: Bloomberg

Lloyds Banking Group (Q3 update 25 October)

At just 9.1 times forward earnings versus 13.6 for its sector peers, Lloyds still looks attractive, helped by a steady rise in underlying earnings. One worry is still the further costs for payment protection insurance (PPI) claims, an issue that refuses to go away, while Lloyds’ increased presence in credit cards means the potential for higher bad loans. As ever, it is the dividend that makes Lloyds attractive, especially since the share price has essentially gone nowhere for months.

The shares faltered recently at 68p, but the bounce from 62p has been maintained, as the 50-day simple moving average (SMA) of 65.5p comes into play. Further gains would target 69p, and then 71p. A move below 65p would head towards the September low at 62p. 

GlaxoSmithKline (Q3 earnings 25 October)

GlaxoSmithKline's (GSK's) figures come following mixed numbers from Reckitt Benckiser and Unilever, with GSK’s consumer healthcare division in focus as a result. The new CEO has begun her programme of asset sales, and we look for further updates on this point. The drug division has suffered, thanks to the decline of revenues from Advair; so cost-saving and margin-boosting efforts remain on the agenda. At 13.6 times forward earnings versus a two-year average of 15.3, and a 5.2% yield against a sector average of 2.5%, GSK still has a lot going for it.

The shares have rallied hard from their September lows, but have faltered at the key £15.43 level, the peak from August and previously the support back in April. Above here the £16.50 highs from July come into play. Further downside would see the shares head back to the £14.50 low.

Royal Bank of Scotland (Q3 update 27 October)

Is there any light at the end of the tunnel for Royal Bank of Scotland (RBS)? Perhaps. The return to dividend payments for Lloyds meant RBS, by comparison, looked even worse. The shares have been cheap for a long time, at 11.4 times forward earnings for 2018. A strong operating margin of 36.00% versus the seven-year average of 18.50% helps to boost profitability. If RBS moves towards a dividend payment, then the combination of low valuations plus a payout makes the firm look more attractive. A first-half adjusted operating profit of £3 billion shows that the bank is doing something right.

2017 has been a bumper year for RBS, with the surge from the September lows taking the shares to levels seen since the beginning of 2016. Pullbacks should remain buying opportunities, with 271p and then 260p as potential support. Any drop that holds above 240p remains a higher low, and thus the outlook would remain bullish. 

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