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By Chris Bailey | Wednesday 11 July 2018
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Back in January, I talked positively about Burberry (BRBY) shares and since then they have pushed up very nicely. Today's stock market is one where you have to be prepared to take a few profits too and that is my call today with the sort-of luxury goods name after reading through its first quarter trading update.
There was nothing particularly wrong with the numbers today. Burberry remains 'pleased with...progress in the quarter', comparable sales rose by 3% and expectations for the 2019 fiscal year are being hit. So no huge problem or issue there. However the share price action - which is a fall of around 4% on the day as I write - indicates to me that all this is not enough to sustain a nicely above 20 quid share price. This is why if you hold a few shares or even followed my tip, I would get the old top-slicer out right here, right now.
We could talk about valuation which, at pushing near x20 EV/ebit, is full even for a strong branded company like Burberry with all those potential options in building sales in the burgeoning consumer markets of the Far East (which already account for over a third of its sales). The trouble is that even with hopes for the new creative team, a new £150 million share buyback, a 3% dividend yield, the upcoming Vivienne Westwood collection and the like, you are paying up to a level where the possibility of a takeover bid from one of the bigger and badder global luxury names is more than a twinkle in the Burberry Chairman's eye.
Luxury is always subject to consumer whims and the economic backdrop (for all bar the most fiscally solvent of customers). The regional sales split said it all really - with Asia being driven by 'Chinese spend shifting more to Asian tourist destinations', Europe and the Middle East being hit by 'softer tourist demand' whilst digital / e-commerce growth continued to crowd out physical store sales.
Burberry does an excellent job in selling its wares on social media and other new sales/distribution forms but the share price romp has factored all this in and more. Not taking some profits here either aligns you with a rosy cheek view for the economic prospects for the globe or puts you in the camp that this one is going to be bid for sooner rather than later. The former seems a bit too glass very full for me and the latter is wholly unpredictable. I would be taking some profits here and noting down something in the £17s for a think about buying those shares back again.
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