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Earnings look ahead – Bellway, Kingfisher, Next

A look at major UK earnings next week. 

All trading involves risk. Losses can exceed deposits.
Kingfisher-owned store, B&Q
Source: Bloomberg

Bellway (first-half earnings 21 March)

Like many housebuilders, Bellway remains fundamentally cheap by historic standards. Concerns over a slowdown in demand hit the sector in 2016, but so far this has not come to pass. Much will depend on how the UK economy fares during Brexit negotiations, but for the time being the outlook is relatively robust.

A recent six-month trading update saw completions rise 6.5%, while the forward order book was over 9% higher at £1.12 billion. At just 8.1 times forward earnings, the shares continue to look almost absurdly undervalued, even if the yield is slightly below the rest of the sector. Early February saw Bellway shares break the falling trend that had held sway since late 2015. With much of the good news probably in the price, we may see a fresh pullback, but the steady progression of higher highs and lows remains intact, unless it breaks back below £25.40. Currently the next real target is the all-time high at £28.83.

Bellway chart

Kingfisher (full-year earnings 22 March)

Kingfisher has been boosted recently by hopes that rival Homebase may not be seeing as much improvement in trading as had been hoped. Its key French and British markets have been under pressure for some time, with the British in particular falling out of love with DIY.

However, with a good balance sheet and a valuation of 14 times forward earnings (in-line with the five-year average), the firm could be attractive, should the economic outlook improve. In addition, it remains a possible bid target, especially due to the fall in sterling, but for now potential bidders are playing their cards close to their chest.

The company has rebounded impressively from February lows, but the broader range from 320p to 386p remains intact. The 100-day simple moving average (SMA) at 344p and then the 200-day SMA at 349p mark the first areas of possible resistance, but really the shares have to breach the 355p mid-January high to break the cycle of lower highs and lower lows that have predominated since October.

Kingfisher chart

Next (full-year earnings 23 March)

Next has suffered a remarkable fall from grace. Over the past year the shares are down 40%, while the FTSE 100 has risen 20%. Its outperformance has steadily been eroded on a five-year timeline too – in 2015 it was up over 150% from 2012 versus a FTSE that was barely 2% higher. Now the shares are trading at just 9.7 times forward earnings versus a five-year average of 14.1, so arguably the long-term risk reward is much more compelling. The outlook for the rest of the year should be key for near-term reaction, while future improvement in the stock is dependent on the resolution of long-term inventory issues.

Next has been bouncing around the £38 mark for the majority of this year, but is yet to show even the slightest inclination to fill the gap from the beginning of the year. A move to £44.65 would be the first sign of bullish momentum, but it needs a daily close above £47.50 to indicate a real rally could be in the offing. Key support thus far in 2017 has been £37.83. Below this, £36.53 and then £32.71 would come into play. 

Next chart

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