Earnings look ahead – BT, Compass, ITV

A look ahead to key earnings next week.

Chris Beauchamp ChrisB_IG
Chief Market Analyst, London

Publication date : 2017-05-05T16:46:31+0100

Source: Bloomberg

BT — full-year earnings 11 May

BT will be glad to put the past year behind it. The Italian fraud scandal was just the most high-profile of a series of difficult events that rocked the firm, including pension problems and arguments with regulators. The year ahead could also be a difficult one, given that it faces competition from resurgent competitors such as Vodafone and Sky, and at precisely the moment when it is going to have to pay more to improve infrastructure in a number of key divisions.

Earnings per share (EPS) are expected to come under pressure, and even the undemanding 11 times forward PE rating on which the company trades seems to offer little in the way of comfort.

BT shares have steadily declined since early 2016, and a gap down in January took them below 300p. A rally into March ran out of steam around 350p, and then another decline brought 300p back into play once more. The shares are bouncing from here, with 321p a first target, and then on to the 340p-350p zone.

BT

Compass — first-half earnings 10 May

Compass’ diversification, with 90% of earnings generated outside the UK, is one of the chief reasons why it has done so well over the past year. Yet now, with the pound on an upward tear thanks to the general election, perhaps we will see international firms like Compass suffer a more difficult time, or at least underperform as UK-focused firms become more attractive. Nonetheless, steady growth in the dividend and expectations of strong growth in the coming year in earnings means that the shares should continue to do well, even at 25 times earnings.

A fresh all-time high in early May took the shares to £15.78. A dip to the 50-day simple moving average (SMA) in April saw buyers re-enter, and so we look to the current 50-day SMA at £15.14, and then down to the 100-day at £14.76.

Compass

ITV — Q1 trading update 10 May

Given the CEO has just announced his intention to depart, ITV’s Q1 update has just become a bit more interesting. It is now looking more likely that a bid is coming for the broadcaster, with Liberty clearly in the frame at this point (it owns 9.9%). It is a constant refrain, but it likely has more than a grain of truth to it. The firm has done well to reduce its reliance on advertising, but the worry in the longer term is that the media landscape will shift away from the likes of traditional TV towards streaming, including video games, and this could be a major problem for firms such as ITV.

The shares are caught between a clash of trendlines. The descending one off the December 2015 high at 279p, and then the rising one from the June 2016 low at 141p. The price hit the former of these at 220p in April, but since then it has fallen sharply, and further weakness will see a push back to 190p.