Interactive Investor

FTSE 100 shares round-up: Burberry, Rolls-Royce, Halma

It’s another bad day for the luxury goods sector, but a great result for one of the lesser-known blue-chip companies. City writer Graeme Evans also explains why Rolls-Royce shares are higher again.

16th November 2023 13:35

by Graeme Evans from interactive investor

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The cheapest Burberry Group (LSE:BRBY) shares in over a year failed to tempt investors today as FTSE 100 buyers opted for the shelter of Halma (LSE:HLMA) and continuing recovery of Rolls-Royce (LSE:RR.).

The luxury goods group fell 10% after warning in half-year results that its revenue guidance for 2023-24 is unlikely to be met if current weaker demand conditions continue.

Its caution is the latest in a trend that’s already seen quarterly sales growth at Cartier owner Compagnie Financiere Richemont SA Class A (SIX:CFR) slow from 19% to 5% and French rival LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) report a weaker result.

Luxury was a stock market winner at the start of the year, but a backdrop of rising interest rates, elevated inflation and China’s bumpy recovery have weighed on demand.

In today’s results for the six months to 30 September, Burberry’s like-for-like store sales growth of 1% came in short of the City’s 5% forecast, while the wholesale division fell 8% on the back of a weak performance in the Americas.

Based on the current performance, Burberry warned its adjusted operating profit will be towards the lower end of the consensus range of £552 million and £668 million.

Amid the uncertainty, chief executive Jonathan Akeroyd reported strong brand momentum following September’s launch of the first collection of new creative director Daniel Lee.

He also stuck by the medium-term targets set in November 2022 for Burberry to grow sales to £4 billion, and then reach a longer-term ambition of £5 billion. During the half-year, revenues rose 4% to £1.4 billion but operating profits fell 15% to £223 million.

The interim dividend is 11% higher based on 30% of the full-year award, with the payment of 18.3p a share due to take place on 26 January.

The shares were above 2,500p in May but now stand at 1,561p after today’s results-day slump, with few signs of interest among bargain hunters later in the session. UBS had a “sell” recommendation and price target of 1,614p prior to today’s warning.

Bank of America said last month that companies with strong “brand heat” are likely to be best placed heading into 2024 as it named Hermes International SA (EURONEXT:RMS) and LVMH as its top Buy-rated stocks, with its analysts more cautious on Kering SA (EURONEXT:KER) and Burberry.

In a session when the boost from encouraging inflation trends began to fade, the best-performing stock in the FTSE 100 index was safety, environment and health technology conglomerate Halma after a half-year performance in keeping with its long-term record.

Revenues, profit and dividends all set fresh records, while Halma enhanced future growth prospects with five acquisitions at a cost of £126 million. It reported strong growth in its largest regions of the US and mainland Europe, but Asia Pacific declined mainly due to weaker China trends.

Halma’s defensive qualities caused its shares to top 3,000p during the pandemic, but there’s been a fall of around a third since then. They rose 92.5p to 2,058p in today’s session, meaning Halma is now slightly higher in the year to date.

The latest rise for Rolls-Royce followed another upgrade to guidance by GKN Aerospace owner Melrose Industries (LSE:MRO). It reported revenues growth of 18% in the four months to 31 October and said its margin performance was substantially better than expectations, partly due to higher aftermarket demand and pricing.

Melrose, whose GKN business is a tier 1 supplier of components for civil and defence airframe platforms, has jumped 86% in value this year but was flat in today’s session. Rolls added another 1.5p to 245.1p, having jumped from 150p prior to July’s big upgrade in guidance.

The next big landmark for Rolls shares is likely to be on 28 November, when chief executive Tufan Erginbilgic reveals the outcome of a strategy review along with medium-term goals for the business.

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.

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