Financial Trading Blog
Stock of the day 07/07/2016 – Burberry Group PLC
Between the start of January and mid-March things were looking great for Burberry, the stock soaring to a 5-ish month high of £14.86 thanks to a combination of strong Asian growth over Christmas and, more importantly, a series of takeover rumours. However, with those takeover rumours turning out to be nothing more than hearsay based on HSBC amassing an increased stake in the company due to a series of trades Burberry soon plunged from its 2016 peak, falling to £13 by mid-April.
(Source: IT-Finance.com 07/07/2016)
Burberry’s decline didn’t end there, the fashion brand posting a 1% fall in half year revenue to £1.41 billion, with a 2% drop in like-for-like sales across the 6 months to the end of March. The company blamed a slump in tourist spending in Europe, alongside suppressed demand in Hong Kong, for the sales slide, news that was little comfort to investors who sent the below £11.50 by mid-May.
The news hadn’t improved by Burberry’s next update, the company stating that it expected the ‘challenging environment for the luxury sector’ to continue as it revealed its full year figures. Pre-tax profits fell 6.5% to £415.6, led lower by a 1% drop in group revenue to £2.5 billion. Hong Kong (and, similarly, Macau) remained Burberry’s main issue; in fact the company’s 1% slide in like-for-like sales turns into a 3% rise when those regions are stripped out.
This only piled on the pressure for Burberry’s stock price, culminating in a 44 month low of £10.40 by mid-June. Yet since then things have begun to improve for the luxury brand, even with the post-Brexit mayhem briefly seeing the stock touch the £10 mark. The reason behind the company’s rise seems to be the sterling’s precipitous decline, with analysts at UBS confident that the ‘weak pound more than offsets weak sector trading’, even if it expects a 5% drop in Burberry’s like-for-like sales in next week’s Q1 2017 report.
Burberry Group sits at a current trading price of £11.71, with an average target price of £14.03 and a consensus rating of ‘Hold’.
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