Equity prospects

Burberry

Geordie Kidston, Head of Research

Price£12.47

52 week high yield£19.28 - £11.89

Net yield2.9%

Hist / pros per15.7 - 16.9

Equity market cap£5,549m

Negative like-for-like sales of some -4% for the first time since 2009 caused recent disappointment at Burberry. This was despite concerted 4% growth in the nascent brand entry level route of Beauty. The deterioration in Retail trends was caused by a challenging environment over the summer, particularly in China where local consumers have coped with adverse macro-economic data, the domestic stock market correction and the effect of the ongoing renminbi devaluation on traveller expenditure. In addition, Burberry has a larger UK exposure than its Continental counterparts, providing a boost from a strong Sterling currently. In addition, as Burberry’s important Japanese exposure was in transition from a historic fragmented franchisee system, Burberry’s sales profile remained unsatisfactory. Demographic trends and high online brand recognition favour the medium term prospects at Burberry where the invested capital base has established a leading edge proposition within e-commerce. This is driven by their unique burberry.com distribution asset, particularly as smartphone penetration among millennials in Asia grows. Burberry remains notably independent in a sector whose cost base and demographic positioning remain in transit.

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