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Earnings look ahead – Vodafone, British Land, Burberry

A look ahead to companies reporting earnings next week.

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Burberry
Source: Bloomberg

Vodafone

Vodafone is expected to report a 26% drop in earnings per share, to 4.9p, while revenues are expected to weaken by 3.5%, to £53.9 billion. There may be some discussion of the group’s pay TV ambitions, which reportedly have been junked and cost the company a significant amount in penalty fees. This does not remove the group’s need to continue expanding into all media types, including content, in order to maintain its relevance against rivals. Investors should also look for comments on currency impacts, given it has revenues in sterling, euros and rupees, and needs to maintain competitiveness in the cut-throat Indian market, which could see margins hit.

A substantial rally in the shares from the April low has taken the price back to the 200-day simple moving average (SMA) at 211p, which it last reached in mid-March, and fell back. However, the break of the post-August 2016 downtrend that took place in March, which was followed by a sustained pullback that held above the trendline, suggests buying strength, with 215p the first target. 

Vodafone chart

British Land

Full-year 2016 report is expected to see a 4.3% rise in income for British Land, to £380 million, while revenues are expected to be 46% higher at £658 million. The sector was hit hard in the wake of the Brexit vote, on fears that demand for office space in London would dry up, while imported inflation would hit UK shoppers and cause them to cut back on spending. At around 18 times forward earnings, the firm looks rather expensive, although its healthy dividend yield of around 4.5% will mean that income hunters will continue to take an interest.

The dramatic falls seen in June 2016 were merely a part of a longer-term fall in the shares from the highs of around 880p in October 2015. From September until March, the shares underwent a steady bottoming process, with firm support developing in the 566-587p range. In early April they broke the downtrend line that has prevailed since October 2015, and while progress has slowed over the past week, the next target is 682p, the August 2016 high.  

British Land chart

Burberry (full-year earnings 18 May)

Burberry is expected to report a 10% rise in earnings year-on-year, to 77p per share, while revenue is expected to rise by a similar amount. This expected improvement in earnings is reflective of an improvement in the general environment. A recent upgrade from Credit Suisse noted that, relative to competitors, margins had begun to recover, while the new CEO, Marco Gobbetti, is expected to unveil further developments. The shares currently trade at 21 times forward earnings.

The steady uptrend in Burberry shares took a knock in March and April, with a gap lower causing the price to give back most of the gains made since January. However, a modest recovery since then suggests that investors are becoming more optimistic, but we do need to see a push back above £17, which would put it back above the June 2016 rising trendline. A fall below the April low of £15.42 would indicate a bigger downtrend is at hand. 

Burberry 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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