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Earnings look ahead – Tesco, WHSmith, Dunelm

A look at company earnings next week.

All trading involves risk. Losses can exceed deposits.
Tesco
Source: Bloomberg

Tesco (full-year earnings 12 April)

Expectations are for underlying earnings to hit £1.25 billion, a slight upgrade to the firm’s previous forecast of £1.2 billion. The Booker takeover means that Dave Lewis has to show that the supermarket’s turnaround is well-advanced and also display well thought-out plans for the incorporation of the Booker operations. Sales momentum needs to be maintained, to avoid giving the impression that Tesco has moved on Booker in order to make itself look better, and to cover a stall in the rate of recovery. Still, with 28% of the market versus 16% for rival Sainsbury's, Tesco remains well-positioned overall.

The company’s shares have steadily lost ground since peaking just shy of 220p in December 2016. Rallies have been firmly sold since then, and we remain stuck in a downtrend. The recent low of 182p provides a key support level, and if this is broken then 160p and lower could come into play. A rally must post a close above 200p to indicate firm bullish momentum.

Tesco shares price chart

WHSmith (first-half earnings 12 April)

WHSmith continues to enjoy the benefits of owning a travel division; rising passenger numbers and new store openings are driving the firm forward. Growth of around 6% is pencilled in for the coming few years, although investors will be worried that the outlook for the UK high street division is less rosy. A combination of rising inflation and weak pay rises mean that real UK incomes will see a squeeze. Nonetheless, the firm appears to be getting the details right as the recent trading statement pointed to better margins in result of a focus on high growth food and souvenirs, particularly in the travel division.

The shares have recovered well from their nadir in December at £14, and are now just above £18. This is the peak from early February 2017, with a daily close above here pointing towards a move back to the 2016 high at £18.93. A steady rising trend from the December lows means that we could see a drop to £16.50 and still be in an uptrend. 

WH Smith shares price chart

Dunelm (trading update 12 April)

Worries about the weaker trading outlook for the UK consumer should be seen in the Dunelm update this week. The overall home improvement market remains under pressure, and peer DFS recently warned about the difficult outlook. A cautious tone to the statement could lead to further weakness.

Dunelm has noticeably underperformed the UK stock market over the past year or more, having fallen from a peak near £10 in Q1 2016 and lost ground further since then. The shares have found plenty of support at 610p since early February, with the 2010 peak at 601p providing further support. A close below here raises the prospect of a move to 443p.

Dunelm share price chart

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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