Earnings look ahead: Greencore, Ferguson, Berkeley Group

Ferguson (Q1 update 4 December)

Ferguson's first update for its financial year comes after the shares have dropped to just 12.1 times forward earnings, against a five-year average of 15.2. The firm faces a tough outlook in the UK, where pressure on margins arising from higher costs has led to a branch closure programme. Increasing competition means that the firm will struggle to boost profits as it looks to maintain market share. Fortunately the strength of its US division will help compensate for UK weakness, but the downturn in US housing data sends a signal that tougher times may be on the way here as well.

One of the great uptrends of the past two years continues to come unstuck. The price has rebounded from the November lows, but any rally that stays below £54 is still a lower high and thus a possible selling opportunity. Below £47 the £43.60 area comes into play.

Berkeley Group (first-half results 7 December)

Berkeley Group has struggled of late, along with the rest of the sector, thanks to ongoing concerns about the viability of UK housebuilder stocks at a time when the UK’s future is so much in doubt. Berkeley’s focus on London, previously a strength, has now become more of an Achilles’ heel, as prices in the capital begin to fall for the first time since 2009. The sector is trimming its ambitions, hoping to ride out the storm until better times come along.

Berkeley currently trades at 9.3 times forward earnings, broadly in line with its five-year average of 9.7. However, while this is cheap compared to the 2018 high of 13.5, the tough outlook of rising prices and weakening demand means the valuation may not yet take into account all the bad news.

Berkeley’s shares have been hit hard over the past few days, and have returned to the October low just above £32. If this holds another bounce towards trendline resistance around £36. Below £32, £30.44 and £29.26 are areas of possible support.