Interactive Investor

Must read: FTSE 100 high, GameStop, US inflation, Burberry, Imperial Brands

Our head of investment rounds up the morning's big news.

15th May 2024 09:06

by Victoria Scholar from interactive investor

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    GLOBAL MARKETS

    European markets are trading higher - the FTSE 100 is leading the gains up over 0.5% to hit a fresh record high, lifted by Experian (LSE:EXPN) which has surged 8% thanks to a strong annual revenue forecast. Meanwhile, weak full-year results from Burberry Group (LSE:BRBY) have dragged the luxury stock to the bottom of the blue-chip index. Anglo American (LSE:AAL) announced plans to demerge its 85% stake in De Beers after rejecting a sweetened takeover offer from rival BHP Group Ltd (LSE:BHP), saying the £34 billion bid was ‘highly unattractive’ for shareholders. Both stocks are trading higher. 

    Global equities are on a tear – the MSCI All Country World Index closed at a record high last night and the US tech-heavy Nasdaq also hit a record closing high last night. 

    The meme stock frenzy looks like its back - shares in GameStop Corp Class A (NYSE:GME) surged by almost 60% on Tuesday, extending gains after soaring 74% on Monday. AMC Entertainment Holdings Inc Class A (NYSE:AMC) shares also jumped nearly 31% in yesterday’s trade, fuelled by the return to social media of Keith Gill who was the behind the meme stock craze in 2021. 

    Federal Reserve watchers will be paying close attention to the latest US inflation rate for April out today, which is expected to drop to 3.4% from 3.5% in March, retreating from the highest level since September. Meanwhile, annual core inflation is easing seeing to 3.6% in April down from 3.8% in March and February.

    BURBERRY 

    Burberry reported a 34% plunge in full-year operating profit to £418 million on group revenues down 4% to £2.97 billion - it warned that the first half of this financial year will ‘remain challenging’, sending shares to the bottom of the FTSE 100. 

    Final quarter like-for-like sales slumped 12% overall, dragged down by a 17% slide in Asia Pacific as well as a 12% and 3% drop in Americas and Europe respectively. While Mainland China suffered a 19% slump in Q4 same store sales, Japan was a bright spot up 18%. 

    Its more expensive ready-to-wear product segment struggled while its more affordable scarves enjoyed double-digit percentage growth. 

    Burberry has been hit hard by the luxury industry’s global slowdown, hurt by slower demand from Chinese tourists and US shoppers amid the global macroeconomic headwinds. Those pressures look set to endure across the first half of this financial year for the trench coat maker. 

    The shift away from bold patterns like the tartan check that Burberry is best known for towards much more discreet ‘quiet luxury’ trends instead has hurt the luxury brand, which is struggling to find favour among the fickle fashionistas. The luxury industry more broadly tends to be highly correlated with the strength of the Chinese economy, given that shoppers in China typically account for around a third of global sales. And with the world’s second-largest economy facing pressures from its ailing real estate sector and a sluggish emergence from the pandemic, Burberry is intensely feeling the squeeze. 

    Shares have fallen sharply today, landing Burberry down by more than 50% over the past 12 months, vastly underperforming rivals Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC) and Compagnie Financiere Richemont SA Class A (SIX:CFR) which are down 10% and 12% respectively year-on-year. There’s a negative assessment from the analyst community too, with 17 holds, 3 sells and no buys on the stock with an average price target down nearly 6% from Burberry’s current share price. 

    Other than a significantly cheaper share price than a year ago which may very well appeal to value investors, there’s not much to get excited about when it comes to the near-term prospects for Burberry.

    IMPERIAL BRANDS 

    Lee Wild, Head of Equity Strategy, interactive investorsays: “A four-year long share price decline from all-time highs in 2016 ended for the tobacco companies just after the pandemic. Since then, Imperial Brands (LSE:IMB) at least has made solid progress, and its shares have performed well since a 9 April trading update, adding 12% in the run up to these results and outpacing both arch-rival British American Tobacco and the broader UK stock market. And the business continues to justify the more generous valuation with results that beat expectations on a number of levels. 

    An 8.6% increase in prices was more than the City had expected and was able to offset a 6.3% decline in volumes, which reflected industry-wide issues and was pretty much in line with forecasts. Organic revenue growth in tobacco and Next Generation Products (NGP) like vapes and herbal sticks of 2.8% was ahead of consensus estimates at constant currency. So was adjusted operating profit growth, also up 2.8% to £1.67 billion. In the fiercely competitive NGP market, Imperial delivered 16.8% net revenue growth at constant currency and narrowed losses by 8.9% to £50 million. 

    It was disappointing to see market share declines in Germany and the UK, although these were already predicted and were offset by gains in the US, Spain and Australia. A 4% increase in the half-year dividend to 44.9p will also please income investors who flock to Imperial for its 8% yield.

    After wins in a number of areas during the first half, Imperial remains upbeat about the outcome for 2024. And no wonder, with organic revenue growth for tobacco and NGP at its strongest in more than 10 years. Matching its own guidance this year will be a fine achievement, and the company has almost two years of a five-year strategy still to run which it hopes will continue to deliver further operational benefits.

    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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