The Week Ahead – 20 February 2017

  • Stock Market Analysis

Local companies that will be in the spotlight this week include:

  • Aveng (Interim Results): In an updated trading statement, management guided for the headline loss per share to worsen by between 65% and 73% y/y, mainly impacted by a present value charge of R165 million related to a settlement concluded with the SA Government, and an insurance recovery related to the Moma Sands counter claims of R150 million (expected to be recovered in 2H17).
  • Imperial (Interim Results): The group guided for HEPS to fall by between 13% and 20% y/y, behind expectations (-6.5%). The decline was mainly due to forex losses, higher finance costs and higher amortisation costs. Management expects single digit growth in revenue and operating profit for the period.
  • Shoprite (Interim Earnings): In a January operational update, the company said that revenue was up 14%, well ahead of full year expectations (+10%). Like-for-like sales growth in SA Supermarkets showed a substantial improvement y/y, while Non-RSA Supermarkets and Furniture came under pressure. Consensus is looking for an 11.2% increase in earnings for the full year.
  • Adcock Ingram (Interim Earnings): Management guided for HEPS to increase by between 45% and 49%, ahead of market expectations (+23.1%). This includes a one-off gain from the sale of AIP’s Indian business.
  • RCL Foods (Interim Results): HEPS are expected to fall by between 36.9% and 54.1% y/y, tracking well behind full year market expectations (-16.2%). Although a weak result was expected due to the deterioration of the Chicken business, the bottom-line performance was further weighed on by once-off costs.
  • Spur (Interim Earnings): Excluding a number of one-off items, including the impact of the closure of the UK and Ireland business, HEPS are expected to grow by between 2% and 7%, tracking behind full year market expectations.
  • Liberty Holdings (FY16): In a January trading statement, the company said that HEPS were expected to fall by between 40% and 60%, significantly behind expectations at the time (-5.4%). Lower investment returns, worsening persistency and high risk claims were some of the factors which impacted earnings negatively.
  • Barclays Africa, Discovery Group, Advanced Health, Murray & Roberts, Mondi , AngloGold Ashanti, African Oxygen, Assore, Impala Platinum, Northam Platinum are some of the noteworthy counters which will also release results this week.

On the local corporate actions front, Tiger Brands , EOH and Quantum Foods will host AGMs this week.

As fourth quarter earnings season tapers off in the US, only a few retail counters are left to release results this week, where it is expected that Wal-Mart Stores , Macy’s, Home Depot , The Gap and Foot Locker benefited from recent momentum in US retail sales. Retail sales in the US have been growing steadily over the last two months, recording growth of 0.4% m/m in October and an upwardly revised 1% for December. Multinational tech firms HP and Hewlett Packard are also likely to grab investors’ attention with both companies set to report first quarter results. According to JP Morgan’s Q4 Earnings Season Tracker, 76% of S&P500 companies have reported EPS numbers ahead of estimates, surprising positively by an average of 2%. Looking at the overall market, fourth quarter EPS growth came in at 5% y/y with ~73% of sectors delivery positive growth. Top-line growth came in at 4% y/y with 52% of the counters beating sales estimates. Compared to FY16, projections for FY17 across the majority of key regions have been trending upwards except for the US. This is likely due to expectations for further dollar strength (adversely affects multinationals) over the medium term on the back of looming Fed rate hikes.

Europe remains busy this week with over 100 companies set to release results across the region. The financial and banking sector will be in the spotlight with HSBC kicking off the week with full year results followed by Barclays on Thursday and Royal Bank of Scotland on Friday. According to Bloomberg estimates, all three banks are expected to report declines in earnings in excess of 20% y/y. German multinational chemical, pharmaceutical and life sciences company Bayer and French car manufacturer Peugeot will also release FY16 numbers during the week. Based on JP Morgan’s Q4 Earnings Season Tracker, year-over-year EPS growth in Europe is standing at 10% thus far and was positive across nine sectors. With the majority of companies having already reported 4Q16 results, 51% beat EPS estimates as of last week.

In the Asia Pacific region, the focus will likely be on the Australian materials and energy sector with a number of large-cap counters set to report half and full year numbers. Bloomberg estimates are looking for most of these companies to report lower full year earnings (WorleyParsons -9.9% and Caltex Australia -15.5%), except for Fortescue Metals – expected to report growth of 121.1% for FY17 – mainly due to much higher iron ore prices.

Some of the economic releases to take note of this week include UK retail sales data for January, South Africa’s PPI data for January & SARB Leading Indicator, and US existing home sales data for January.

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