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Earnings look ahead: William Hill, Burberry, Fevertree Drinks

Bookie William Hill, fashion retailer Burberry and upmarket drinks maker Fevertree report on their recent trading next week.

William Hill (trading statement 21 January)

Half-year results from William Hill were a mixed bunch, with a 13% fall in adjusted pre-tax profit, along with the £883 million write-off relating to fixed-odds betting terminals. Much hope had been pinned on US expansion, as was the case for other UK gambling firms, as a means of escaping a difficult consumer and regulatory environment at home. But it looks like these hopes will be dashed once again, as the Justice Department says a federal ban on internet gambling encompasses all forms and not just sports betting.

Now that this key driver of future returns looks to be a non-starter, William Hill shares seem to justify a re-rating, potentially unwinding much of the bounce in the forward price earnings (PE), which has rocketed to 13.6 from a multi-year low of around 9 in December.

The price has broken above the 50-day simple moving average (SMA) for the first time since May, and a lower high around 160p has found buyers in recent days. Now that the price has cleared the early January high at 174p, further upside in the short term seems likely.

Burberry (Q3 trading statement 23 January)

As China growth concerns resurface, investors will be keenly awaiting the latest set of figures from fashion giant Burberry. Notwithstanding the retreat in the share price in the latter half of 2018, the market is looking positively on the brand repositioning initiated by the new chief creative officer. While net cash remains solid, the firm has seen a hit to profitability due to increased output and a quest to simplify its offering. At 20.5 times earnings, the shares are broadly in-line with their five-year average of 19.8, having dropped back sharply from the 2018 peak at 28 times earnings.

The price has rallied only modestly since a low at the beginning of January. It is now challenging the area around £18.20, which formed resistance back in October and into December. So far this month, £18.00 itself has been strong resistance; a break above £18.50 is needed to clear the path to £19.30 and £20.23.

Fevertree Drinks (trading statement 24 January)

At 45.7 times forward earnings, Fevertree Drinks is cheap compared to the peak of 75 seen in 2018. But the general risk-off sentiment in markets hit growth stocks like the drinks maker's hard.

However, it looks to be expanding further into the US, which offers more potential than the tonic-soaked UK market. At the half-year, the board said performance would be ‘comfortably ahead’ of expectations, so there is a lot to live up to. Takeover rumours continue to bubble around the firm, but have yet to appear in anything other than spirit form. Unilever has been mooted as a possible buyer, given its ability to give Fevertree a broader reach, but Unilever deals mainly with wholesalers and supermarkets rather than the upscale restaurants and bars hitherto favoured by Fevertree.

The shares broke out of the bullish wedge at the beginning of December, and have rallied sharply since then in a textbook move that has seen them clear the 50-day SMA and surge to the highest level in almost two months. The move higher has been relentless, and now targets the mid-November highs just below £30.00. A break of the steep trendline support from the January low might suggest a move back towards the 50-day SMA (currently £24.67) and then down to the £24.30 area of support from 15 January.

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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