Why Earnings Will Sink At Antofagasta plc, Burberry Group plc, Johnson Matthey PLC And WM Morrison Supermarkets PLC In 2016

Today I am looking at four London stocks in danger of sliding in 2016.


It comes as little surprise that mining play Antofagasta (LSE: ANTO) has been one of the worst performers during 2015 as commodity prices have continued their shocking retreat. Indeed, the Chile-based business has seen its share price fall by a third since the turn of the year, trekking lower in line with a 20% fall in the copper price.

And things are unlikely to get much better in 2016 as economic indicators from minerals gorger China keeps on disappointing — indeed, the OECD warned just today that trade flows have dropped to levels “associated with global recession” thanks to slowing Chinese activity. The organisation now expects trade growth to fall to 2% this year from 3.4% in 2014, and I for one wouldn’t bet the mortgage on things improving in 2016.

Against this murky demand backdrop, and with metals producers continuing to raise output, I reckon earnings growth will remain elusive at Antofagasta for some time yet.

Burberry Group

Although operating at the opposite scale to Antofagasta, I reckon raincoat-and-handbag maker Burberry (LSE: BRBY) is also in danger of suffering from declining demand from China. The fashion house advised last month that an “increasingly challenging environment for luxury… particularly [from] Chinese customers” hampered revenues expansion during July-September.

 In particular, Burberry saw sales in Hong Kong deteriorate further from the previous quarter, resulting in a mid single-digit percentage decline in Asian sales during the first half of 2014.

But while macroeconomic pressures on consumer spend may linger a little longer, I believe the strength of Burberry’s brands, combined with its pan-global presence, should still deliver strong growth in the coming years, particularly once current economic bumpiness in China levels off.

Johnson Matthey

I am not so convinced by the earnings prospects of precious metals refiner Johnson Matthey (LSE: JMAT), however. Thanks to the effect of a declining US dollar, not to mention weak industrial and investment demand, I believe that commodity values should continue to languish in the year ahead, a terrifying prospect for the London-based business.

On top of this, the fallout of the Volskwagen emissions scandal is also likely to play havoc with Johnson Matthey’s growth picture. Car sales in the UK fell 1.1% in October, according to the SMMT, representing the first fall for four years. And in the longer-term, revenues at the company’s autocatalyst arm could take a battering should fresh regulatory testing spell the death of the diesel engine — diesel devices are by far Johnson Matthey’s most profitable automotive product.

Although news from the critical truckbuilding sector has been more positive of late, I reckon Johnson Matthey faces too many obstacles to be considered a solid growth selection.

WM Morrison Supermarkets

And I believe the same can be said for bombed-out grocery play Morrisons (LSE: MRW). In yet another hair-yanking trading update issued last week, the Bradford business advised that like-for-like sales slipped 2.6% during August-September, speeding up from the 2.4% drop punched in the previous three-month period.

Morrisons remains stricken by price deflation and the surging momentum of discounters like Aldi and Lidl, with measures like revamped loyalty schemes and store re-fits failing to grab shoppers’ imaginations. And I fully expect the problem to get significantly worse in the years ahead as both budget and premium rivals’ expansion programmes click through the gears, while the critical online segment also becomes increasingly competitive.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.