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Earnings look ahead – Tesco, IAG, Ferrexpo

A look at several company earnings next week. 

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

Tesco (first-half figures 4 October)

Tesco is expected to report earnings per share (EPS) of 4.5p, up 50.8% year-on-year, while revenues are expected to grow 3.2% to £28.2 billion. Like-for-like sales are forecast to rise 2.5% for Q2, versus Q1 growth of 2.3%. This would be the seventh consecutive quarter of growth, as the firm benefits from its strategy of holding down prices, even as food inflation rises. A dip in the sales growth of discounters Aldi and Lidl provides further hope, as Tesco’s countermeasures, such as its Farm Brands ranges, help to tempt customers back. At 15.8 times forward earnings the stock is cheaper relative to its two-year average of 19.9 times earnings.

Tesco has broken its downtrend from the 2016 highs, breaking out and then consolidating. It remains constrained by the 190p level and the still-falling 200-day simple moving average (SMA) at 185.7p. A push above 190p would target 195p and then on to 201p. For now, dips to 180p tend to bring out the buyers.

Tesco chart

IAG (September traffic figures 4 October)

While it is probably too much to see whether Ryanair’s travails have affected IAG’s statistics, it will be interesting to see if passenger numbers are under pressure due to the weak pound. Longer-term, the improving global economy should help underpin business traffic, however. While IAG has left the FTSE 100 comfortably far behind in terms of returns this year (38.2% vs 6.5%), the shares are still trading at an impressive 71% discount to its peers, providing a relative value trade.

IAG’s steady trend from the lows of October 2016 has come under pressure as the shares head back to £5.80, but having bounced from this area the buyers may be taking charge once more. A move above £6.17 would certainly indicate that the pullback is over, with the £6.39 high from August the next target. A close below £5.76 would suggest a broader pullback, and potential change in trend.

IAG chart

Ferrexpo (Q3 production numbers 5 October)

Ferrexpo’s steady rally has come, despite heightened volatility in the iron ore price in recent months. The rally has been driven by high cash generation and a radical reduction in its debt pile. From the tough times of 2015, Ferrexpo seems to have transformed itself.

The chart here is one of the more impressive trends in the London market. Dips have been firmly bought, with the latest bounce off the 50-day SMA (277p) the most recent example. The high of the year, 327p, is the upside target, while only a close below the 272p peak of early August changes the outlook.

Ferrexpo chart

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