Legal & General (first half earnings 9 August)
Legal & General’s (L&G) first half figures will be watched for any hints as to the outlook for the annuities business, which has been under general pressure since the government loosened the rules regarding this retirement product. The sale of the Dutch business is forecast to hit earnings as well. Assets under management have been cut back following the sales of Cofunds and Suffolk Life, although the robust nature of equity markets will help offset this. L&G’s forward operating margin of 22.4% is however much stronger than the 15.8% average that has prevailed over the past six years, while its expected yield of 5.3% versus 3.1% for competitors is particularly attractive.
From a Brexit low of 160p in mid-2016, the shares have continued to claw back lost ground. As with Prudential, regular dips have provided good buying opportunities all year. The next level to watch are the December and August 2015 highs at 275p and 277p, and then on to 296p and the high from March 2015. A drop below 246p would be needed to really negate the strong trend.
Glencore (first half earnings 10 August)
A better outlook for commodity prices heading into the second half provides some reason for optimism as Glencore is concerned, but a poorer performance in the firm’s second quarter means that it might be tough to find overall good news in the upcoming first-half earnings report. Fortunately, Glencore’s ongoing disposal programme will help provide a further cushion of funds. Improved marketing spend should give Glencore an edge over some of its rivals. The big risk for the second half is a stronger dollar, which could easily derail any nascent commodity price rally. Glencore has a dividend yield of 1.6% versus an average of 3.3% for comparable firms, while its forward PE of 13.2 is higher than that for diversified rivals such as Rio Tinto (forward PE of 10.2).
The picture here is dominated by two trendlines. The first is the downtrend from the 2014 all-time high of 380p. The price has tried to break this three times this year, so far with no success. A close above 340p would clear the way to 347p, and then to 380p. The second trend is the rising one from the 2016 low. The rally suffered a sustained pullback from the 2017 high, but found support at the rising trendline. A drop back to this would suggest a move down to around 307p.
Prudential (first half earnings 10 August)
First half earnings for Prudential are expected to see benefits from FX translation, along with improved growth in China, although the latter could suffer from weaker gains in Hong Kong. Prudential’s push into Asia continues to reap rewards, and its US business continues to do well too, helping to offset poorer trading in the UK. Rising equity markets and higher interest rates, particularly in the US, should provide a notable tailwind for Prudential. The group’s strong performance helps to account for why it trades at 3.3 times book value against 1.3 times for peers, which may put off some value investors. A weaker yield of 2.3% vs 4% for other such firms also diminishes its appeal on a fundamental basis.
‘Buying the dips’ has worked on the Prudential chart since November of last year. The latest dip took the shares to the 100-day SMA (currently 1748p), with the shares bouncing back above the 2015 high of 1758p. Any pullback should be seen as a new buying opportunity, with only a move below 1733p being a really bearish development.