Some of the local earnings releases to take note of this week include:
- Calgro M3 (Interim Results): In a recent trading statement, the company stated that headline earnings per share (HEPS) are expected to fall by 26.7% y/y to 47.41 cents per share. Profit after tax was negatively affected by the construction of units for the AFHCO Calgro M3 Consortium. The group’s shareholding in the REIT has resulted in 49% of the development profit (construction and other services) being recorded as an unrealised profit. Core HEPS (before elimination of unrealised profits) are expected to be 18.4% higher y/y.
- Pick n Pay Stores (Interim Results): Based on the 26-week trading update, normalised HEPS are expected to increase by between 10% and 15% y/y, in-line with full year expectations. Including the net cost of the voluntary severance programme (VSP), HEPS will between 20% and 25% lower y/y. The VSP was a key step in modernising and reducing costs within the business. The once-off costs will be fully recovered in the current year.
- Famous Brands (Interim Results): Management recently guided headline earnings to fall by between 54% and 63% y/y, tracking significantly behind full year expectations. Earnings were negatively affected by higher finance costs (+R130 million) and an operating loss incurred at the GBK business (PBIT loss £872 000).
- Adcorp (Interim Results): The group delivered a headline loss per share of 27.9 cents (FY16: 299.6 earnings) during FY17 which was in-line with management guidance. Trading profits were impacted by recent changes to South African labour laws as well weakness in the African and Australian operations due to the cutback in oil and gas related projects. Despite tough economic conditions, management stated that stability has crept back into the SA TES (Temporary Employment Services) market, and the group is in the process of scaling back its African operations to stem losses.
- Dis-Chem Pharmacies (Interim Results): According to recent trading guidance, HEPS are expected to increase by between 34.8% and 39.5% y/y, which is tracking well ahead of full year market expectations. The weighted average number of shares in issue increased by 8.3% because of the listing of the company on the JSE in November 2016.
- From a local corporate actions perspective, Tuesday marks the last day to trade in several counters including Capitec Bank , Choppies, RCL Foods, Intu Properties and Wilson Bayly Holmes-Ovcon to receive their latest distributions. These counters will trade ex-dividend on Wednesday. Lewis will host a AGM on Tuesday followed by Tsogo Sun on Thursday.
Earnings season in the US is expected to intensify next week with approximately 60 S&P 500 companies set to release third quarter results. Goldman Sachs ) and Morgan Stanley will be amongst some of the large banking counters scheduled to release quarterly numbers followed by other popular financial services companies including American Express and PayPal. Based on Bloomberg estimates, all the previously mentioned companies are expected to report positive earnings growth for third quarter except for Goldman Sachs (-12.9% y/y). Bloomberg Intelligence stated that revenue at Goldman Sachs may come under pressure due to weaker fixed income, currencies and commodities trading during the third quarter. This may look weaker compared to other competitors given that the bank recorded a stronger 3Q16 than most, along with Morgan Stanley and JP Morgan. Investors will also keep a watchful eye on results from entertainment company Netflix , multinational conglomerate corporation General Electric , pharmaceutical company Johnson & Johnson and eCommerce retailer eBay. Looking ahead to the entire 3Q17, the estimated earnings growth rate for the S&P 500 is 4.2% with eight out of the eleven sectors expected to report positive earnings growth. This is lower than the 7.5% growth expectation as at 30 June, mainly due to downward revisions on the back of several issues including heightened global political risk and uncertainty regarding policy changes within the US.
In Europe, the focus will likely to be on vehicle producers Daimler and Volvo as well as Dutch-British transnational consumer goods company Unilever . Whilst Bloomberg estimates are guiding for a drop in quarterly bottom-line growth from Daimler (-14.8% y/y), Volvo is expected to report solid double digit earnings growth of 56% y/y. Daimler has recently grabbed investor’s attention with their strategy to split the Mercedes business into Core and CASE which will allow the group to utilize unique strategies within each division. A research report from Morgan Stanley highlighted that whilst the CASE strategy is likely to dilute earnings, management is progressing quickly in its future transition.
In the Asia-Pacific region, Chinese state-owned telecommunication company China Mobile is likely to generate some buzz next week as the telecoms giant prepares to release third quarter results on Friday. According to Bloomberg estimates, the group is expected to report earnings growth of 5.2% for the full year, an improvement compared to the previous year. Bloomberg Intelligence suggests that sales may slow in 2017 as 4G matures, tariffs fall on government orders and as smaller rivals like China Telecom and China Unicorn capture 4G market share with their improved data networks. Margins are also likely to take some strain from a mix of intensifying competition and rising tower-leasing costs.
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