You might not think the UK economy was in a slump if you visited the country's upmarket shopping spots. Well-heeled Bond Street shoppers continue to snaffle shoes and handbags - good news for luxury goods retailer Burberry. It grew sales by 24 per cent last year, and plans to add 14 per cent more space this year in key global cities.
- Strong brand
- Operational improvements
- Bearish chartist trends
- Concerns over Chinese exposure
- Chief executive cautious
- Share rating high compared with peers
That level of growth has become par for Burberry's course - in five years its revenues have doubled, despite an expensive withdrawal from Spain in 2010. As it turns out, those problems were more than offset by the increasing popularity of the brand in fast-growing markets such as China and Brazil, where the newly affluent are keen to flaunt their spending power. That translated into an eightfold increase in the share price between the 2008 lows of the credit crunch and last summer when the shares peaked around 1,600p.
Since then, though, the price has failed to make progress. Technical analysts point to a resistance level around 1,600p that the share price once again failed to breach earlier this year, setting up - as chartists call it - a double top. In a bull market, the theory goes, that's not a problem. But Burberry's strong up-trend ended a year ago, since when it has marked time. Even last week's decent results prompted a sharp drop after a cautious outlook from chief executive Angela Ahrendts. Importantly, that initially took the price below its 200-day moving average, another technical sell signal.
BURBERRY (BRBY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,424p | MARKET VALUE: | £6.25bn | |
| TOUCH: | 1,424-1,426p | 12-MONTH HIGH: | 1,610p | LOW: 1,034p |
| DIVIDEND YIELD: | 2% | PE RATIO: | 20 | |
| NET ASSET VALUE: | 198p | NET CASH: | £338m | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 1.20 | -16.1 | -1.4 | 12.0 |
| 2010 | 1.28 | 166 | 18.8 | 14.0 |
| 2011 | 1.50 | 296 | 49.3 | 20.0 |
| 2012 | 1.86 | 366 | 60.4 | 25.0 |
| 2013* | 2.14 | 444 | 72.2 | 29.0 |
| % change | +15 | +21 | +20 | +16 |
Normal market size: 1,800 Matched bargain trading Beta: 1.4 *Investec forecasts | ||||
While Burberry has a powerful brand, its share price seems to be hostage to external fortunes. Bouts of price weakness have coincided with fears about the eurozone, or poor economic data from China. Burberry now owns 63 stores in the middle kingdom after acquiring its partner there last year, making it the group's largest single territory, accounting for around 12 per cent of revenues; by comparison, the Americas account for just 8 per cent.
Burberry's premium rating also leaves its share price precariously poised when nervousness rules. Although Burberry's forecast PE ratio of 20 is not astronomical in the context of the global luxury goods sector, it is high enough to make the share price vulnerable if Burberry does not consistently beat forecasts. And it isn't doing this - underlying growth rates are being flattered by opening new selling space. Although retail revenue climbed 31 per cent last year, like-for-like sales grew a more modest 14 per cent, while the benefit from transferring lower-value wholesale revenue to higher-value retail will hit a wall at some point.
