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By Chris Bailey | Thursday 8 November 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.
At the height of the recent market volatility, I wrote a piece talking about some shares that I would buy. The first name I mentioned was Burberry (BRBY), reflecting my thought that it was an inherently strong brand with good exposure to the still growing luxury consumption theme in China. I am pleased to see that today's first half numbers reflect this…
Certainly growth rates are not currently epic - comparable store sales up 3% and adjusted operating profit up 8% only at constant exchange rates with a flat dividend disclosure of 11p - but the key is that it is not resting on its laurels. Beyond the ongoing delivery of cumulative cost savings of £100 million, the report today noted:
'The initial response from influencers, press, buyers and customers to our new creative vision and (new chief designer) Riccardo’s debut collection Kingdom has been exceptional. Mindful that we are only in the first phase of our multi-year plan we continue to manage dynamically through the transition'
Now what do I know about the finer points of fashion? (Answer: very little). But I do see that creative direction matters as ultimately you have to design and sell clothing and accessories that people want to buy. Inevitably a first collection under a new team is an important test but having passed this in a solid/sensible manner, the signs are good. After all this is no surprise: both the newish CEO and newish chief designer cut their teeth in the top echelons of European fashion at companies which have lessons Burberry can learn to get better, smarter and even more valuable as a brand.
The best response has been in China and sales in Asia were regionally the strongest. By contrast Europe and Middle East region sales were flat but interestingly it was nothing to do with laggard economies the UK and Italy as they both grew, rather the Middle East was the culprit ('macro factors' - bit surprising as the oil price has been until very recently pretty firm). I was also pleased to see that the company had actually slightly reduced its number of physical retail outlets. Burberry has always been a bit of a leader in digital engagement on social media and online sales and it can see the way the selling of luxury goods is going.
The balance sheet remains fine too with net cash of £647 million even after returning £276 million to shareholders through a combination of dividends (£126m) and share buyback (£150m). So whilst you wait you have a 5% shareholder remuneration yield (dividend plus share buyback) to look forward to. The stock is on a forward rating of around x14 EV/ebit, which is lowish for a luxury-style name. I still really like that 17 odd quid bad day support level to buy/add at but all I know is - with a fair wind from a global trade and macro perspective - this one is going back to 20 quid plus. Chavtastic!
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