Interactive Investor

Insider: Burberry director bets on Asian luxury goods boom

3rd August 2020 13:22

Graeme Evans from interactive investor

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Burberry and AO World bosses put own money on buyers flocking to handbags and household goods.

A Burberry (LSE:BRBY) director with a close insight into the mood of the Chinese consumer has bought more than £35,000 worth of shares in the handbags and luxury goods business.

Australian Sam Fischer's day-to-day job is with Johnnie Walker drinks giant Diageo (LSE:DGE), where he has led its operations in Greater China and Asia Pacific since September 2014.

He joined Burberry's board as a non-executive director in November, with last week's purchase of 3,000 shares at a price of 1,265p his first in the London-based company.

Fischer's optimism in Burberry's recovery potential comes with shares only 200 points off their low point for the pandemic, having slumped from a near record high of 2,329p in January.

In its first quarter trading update, comparable sales fell 45% after tourism-related business was hit by global travel restrictions and stores closed or operated with reduced trading hours.

More encouragingly, Burberry said growth in mainland China and Korea in June was ahead of pre Covid-19 levels. However, it is likely that the stronger figure will have been flattered by consumers buying Burberry products in their home market rather than on their travels. The group still expects overall sales in the current quarter to fall by between 15% and 20%.

Sales in the Asia Pacific region accounted for 40% of the company's total in the last financial year, with revenues in Europe also benefiting from free-spending Asian tourists.

July's first quarter update prompted UBS to reiterate its “sell” recommendation and price target of 1,015p, with the overall market consensus of the shares now a ‘weak hold’. Our head of markets, Richard Hunter, said recently:

“Even though Burberry is playing to its strengths as far as possible, the environment remains gruelling.”

Burberry is not without its supporters, however. Fund manager Nick Train's Finsbury Growth & Income (LSE:FGT) is sticking by the consumer goods group as one of its top ten holdings. In May, Train highlighted the long-term benefits of several luxury goods companies, despite the decision of the Burberry board that month to dump its dividend.

Prior to coronavirus, Burberry's fortunes had been on an upward curve as chief executive Marco Gobbetti executes a strategy to reinvent the company as a super-luxury brand.

The appointment of Fischer to the Burberry board also gave a boost to the firm. Chairman Gerry Murphy describing Fischer’s first-hand knowledge of “leading iconic heritage premium brands” as a huge asset for Burberry as it grows its business in key Asian markets.

Prior to joining Diageo, Fischer held senior roles at Colgate Palmolive. He is the first Burberry director to buy shares in the market since fellow non-executive board member Debra Lee did so at a price of 2,194p in December.

At AO World (LSE:AO.), a £1.5 million share purchase connected to John Roberts has provided more evidence that the chief executive and co-founder believes the online household appliances retailer will be a major beneficiary of the change in consumer spending habits due to coronavirus.

The purchase by Roberts' wife Sally was at a price of 168.9p and comes less than a month after he bought £233,000 of shares at 144p. It means the former kitchen salesman is now interested in 108.9 million shares or 22.8% of the company he co-founded in 2000.

An employee incentive scheme unveiled two weeks ago showed just how far Roberts and the rest of the company's board believe the Bolton-based business can potentially go.

Measured over a five to seven-year period, the AO Value Creation Plan will reward the company's 3,000 staff should the company’s share price go above 523p, which is equivalent to a market capitalisation of £2.5 billion. Over that threshold, 10% of the value created will be shared between all employees, with awards to executive directors capped at £20 million.

For staff to realise the full benefit of the scheme, the company would need to achieve a share price of at least 941p, equivalent to a £4.5 billion market cap. That value would need to be maintained for at least two further years. 

Roberts, who has committed to donate 100% of any reward he receives to help disadvantaged young people, said the incentive scheme was “one that I'm proud to tell my mum about”.

He said:

“It is an ambitious plan rewarding truly exceptional performance, designed with safeguards to underpin sustainable value creation.”

AO has reported better-than-expected sales since the Covid-19 lockdown, with Roberts confident that the online retailer can be “a new habit that lasts”.

Shares were languishing at 50p in April but have trebled in value since then after AO reported better-than-expected trading and significant market share gains across key categories.

Roberts said last month:

“AO is now set up to benefit from the accelerated structural shift to online in the UK and Germany and our model is now truly scalable.”

A £1.6 billion initial public offering in February 2014 saw shares priced at 285p, and despite soaring above 400p on the first day of trading, they were last above the flotation price in January 2015.

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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