Tomorrow is the day of revelation as Dis-Chem Pharmacies Limited (JSE: DCP) unveils its highly anticipated interim results, igniting hopes of positive developments that could fuel the continuation of its impressive 4% growth this week. Reflecting on its previous report for the year concluding on February 28, 2023, the company disclosed a remarkable 7.4% surge in revenue, reaching a substantial R32.7 billion. Moreover, the basic headline earnings per share (HEPS) showcased a substantial 19.7% uptick, standing at an impressive 118.8 cents.
Nonetheless, the company’s management has candidly acknowledged the challenges ahead. They foresee South African consumers grappling with the ramifications of elevated inflation and interest rates. At the same time, the inevitable rise in operational costs is expected to persistently nibble away at the company’s earnings. The initial response to these concerns was a share price decline of over 9%, but the market soon recouped some of those losses, concluding the day 2% in the red.
In the wake of this eventful earnings release, investors and traders alike will be watching with bated breath, eagerly anticipating the developments to unfold tomorrow. These revelations promise to serve as a compass, guiding us toward the future course of this domestic pharmaceutical and healthcare giant.
Technical
On the 1D chart, the share price is on track for a sixth consecutive day in the green, as it broke through the dynamic resistance of a falling wedge formation. From the late October bottom, the share price now approaches the 61.8% Fibonacci retracement golden ratio at R24.82, which could halt the momentum leading up to the earnings release.
A positive earnings surprise could entice the buyers to continue on its current trajectory, with the first potential level of resistance established at R25.36. From there, a high volume rally could lead the price toward R26.02, and after completing the full retracement of the prior downtrend, higher resistance at R26.86 could be a level of interest in the upcoming weeks.
However, if investors react in a similar fashion to the prior release, the resistance at R24.82 could be the pivot point for a retracement of the current run. The 100-SMA (orange line) could offer support close to the 50-SMA (blue line) and 25-SMA (green line) close to R23.58. At the initial breakout level, the share price could retest the demand zone at R23.04 to gauge the sentiment of investors for the directional trend as we advance.
Summary
Following a volatile reaction to their prior earnings release, all eyes will be on Dis-Chem tomorrow as they unveil their latest interim reports. With the price currently trending up after a falling wedge breakout, the earnings release could be pivotal in either catalysing a retracement of the recent gains or enticing the buyers to continue the current momentum toward R25.36.
Sources: Tradingview, Dis-Chem Pharmacies Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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