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Burberry and RELX still score for quality

Our screen remains positive on the long-term prospects of quality stalwarts.
February 17, 2020

There aren't all that many movers and shakers on our quality screen for the main UK market, but results give plenty of food for thought to carry out investigation into stocks that have been portfolio mainstays for many investors, and could be bellwethers for wider trends. There is also the potential to highlight some interesting up and coming smaller companies on the small-cap and Aim-market screens. 

  • Luxury fashion business Burberry (BRBY) set out how it expects coronavirus to impact its sizeable Chinese sales last week. Unsurprisingly the outbreak has coincided with falls in its share price. Taking a three-month view, the shares are only down seven per cent, which is testimony to positive sentiment before COVID-19 reared its ugly head. The shares still score 9/9 on our quality screen so, while it is prudent to wait for trading updates once the virus has passed its peak, Burberry could well be a share with rebound potential later in the year.
  • One star that has fallen out of the full-marks club is data, publishing and events business RELX (REL). The company doesn’t meet our test on return on equity (ROE) growth momentum but in fairness it had to keep up with some phenomenal numbers. With trailing twelve-month ROE still around 66 per cent, failing the one test really isn’t cause for concern and for a deeper dive into the business (which looks in fine fettle overall), it was covered in Phil Oakley’s Alpha round-up on 14 February.
  • For all shares, especially those in small-cap and Aim companies, our quality screen really is a first step for further analysis – doing well against the tests isn’t a buy signal on its own. That said, it’s always exciting when a smaller company comes from nowhere. This is exactly what’s happened with Aim-listed Solid State (SOLI), which makes electronic components and materials. You should never pile into a £53m market cap business on the strength of a screen, but it would be interesting to understand why it now scores 9/9.
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