Burberry positive, but investors take no chances

by Richard Hunter from interactive investor |

After racing to a near-record high, these results are a good excuse to take profits. 

Burberry Group (LSE:BRBY) is finding that there is much to contend with in its crucial Asian markets.

The scale of the emerging Coronavirus is, of course, primarily a humanitarian concern. It could also have financial implications, which has resulted in a markdown of share prices of those companies which could be affected, such as Burberry. 

Sales in Hong Kong had already halved as a result of the disruptions in the region, while any slowdown in the Chinese economy – caused by the trade spat with the US, temporarily at a truce – or otherwise, is also keeping a lid on prospects. 

The Hong Kong situation has resulted in more inventory needing to be marked down to clear, while in the Americas the Canadian business continues to partially offset any growth being seen in the US. 

From an investment perspective, while the company retains net cash on the balance sheet, the dividend yield of just 1.9% is unappealing in relative terms.

Source: TradingView Past performance is not a guide to future performance

And yet for all its tribulations, Burberry is making some remarkable progress. It has an increasing focus on the Chinese consumer, as evidenced by its impending retail tie-up with Tencent (SEHK:700), in a region where its high-end products are already popular. 

Tourist spend is holding up for the moment, particularly in Continental Europe, while the Riccardo collection not only continues to delight consumers but is also an increasing presence across Burberry’s portfolio.

Meanwhile, full-price sales are holding up and have contributed to an overall increase of 3% during the third quarter, the company’s “brand heat” is growing apace across social media channels and Burberry has guided outlook revenues slightly higher for the coming year.

The longer-term strategy of maintaining its premier product positioning in burgeoning economic regions is one with which the company is well-versed and has already had some success. Equally, if Burberry’s social media presence continues to expand at its current rate, it is likely that a new generation of supporters will maintain a tradition which stretches back over 160 years.

Given all the headwinds in Asia, the market consensus of the shares remains at a “sell”. However, despite those concerns, the share price has been more reflective of the company’s actual achievements, having risen 27% over the last year, which compares to a 10% hike for the wider FTSE 100, and 20% in the last three months alone. 

The jury remains out at present with the share price and investor sentiment not currently seeing eye to eye.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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