Burberry Group PLC (LON: BRBY)

Burberry Group PLC is an FTSE 100 index listed global luxury goods manufacturer, retailer, and wholesaler. BRBY also licenses third parties to manufacture and distribute products using the Burberry trademarks. The Company's segments include retail/wholesale and licensing.

The Group is expected to announce its year ended 2 April 2022 full-year results (FY22) on 18 May 2022.

Recent trend of dividend payments

The Company has a progressive dividend policy of paying its shareholders. Moreover, the Company had paid an interim dividend of 13.8 pence per share on 28 January 2022, with an ex-dividend date of 17 December 2021. In comparison, BYBY had not paid any interim dividend for the prior year and paid a 3% lower interim dividend during H1 FY20.

 (Source: LSE, chart created by Kalkine Group) 

Growth Prospects

• Solid Customer Base: The Group has strengthened in customer base with the addition of new, young customers. This has resulted in an improvement in sales growth across key product categories.
• Brand Engagement: The company is focused on driving brand engagement with its customers by means of compelling storytelling and experiences. In this regard, it has engaged with customers through immersive brand activations at Plaza 66, Shanghai, and the biggest of its kind for Burberry in South Korea on Jeju Island.
• Product Launch: BRBY has been able to make progress in categories such as outerwear and leather goods. It has launched the product suite in sync with current themes and is positive about its recent launch of Lunar New Year campaign celebrating the year of the Tiger with a bespoke product capsule and dedicated fashion campaign.
• Elevating Concepts: The company continues to find ways to enhance customer experience and has rolled out its new store concept. It has reported 31 stores in the new design that also comprises of the second flagship Plaza 66, Shanghai. The Group has anticipated delivering around 50 new concept stores by the end of FY22.

Key Risks 

• COVID Risk: The impact of the COVID pandemic has decreased from its peak. However, the uncertainty of the effect of different variants still lingers on, which poses a risk to the supply chain disruption of the company.
• Macroeconomic Uncertainties: The US dollar hitting two-decade peaks, persistent inflation, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.
• Inflation Risk: Inflation in the UK are at very high levels with data in March 2022 reflecting at 7%. This might dent consumer spending on retail purchases and put pressure on the company's earnings. 

Key Fundamental and Shareholders Statistics of Burberry Group PLC.

BlackRock Institutional Trust Company, N.A. is the most significant shareholder as it holds nearly 25.72 million shares.             

Q3 FY22 Trading Update (for the 13 weeks ended 25 December 2021, as on 19 January 2022)

(Source: Company Filings)

• Growth in Sales: Burberry posted a decent rise in comparable full-price growth to 26% in Q3FY22, compared to Q3FY20. The growth stood at 15% when compared to Q3FY21. Sales from Americas region witnessed decent full-price comparable store sales growth of 72% on Q3FY20, driven by new customers.
• Share Buyback: The company’s share buyback program of £150 million was expected to be completed before FY22 end.

Financial Highlights (for 26 weeks ended 25 September 2021, as on 11 November 2021)

(Source: Company Filings)

• Sales Growth: The company clocked robust revenue growth of 45% in constant currency terms to £1,213 million during H1FY22, compared to £878 million in H1FY21.
• Turnaround in Free Cash Flow: There was a turnaround in the free cash flow performance as BRBY reported a positive inflow of £104 million in H1FY22, compared to cash outflow of £45 million in the prior corresponding period.

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 09 May 2022, at 09:31 AM GMT+1, BRBY’s shares were trading at GBX 1,492.00, down by around 2.09% from the previous day’s closing price. Stock’s 52-week High and Low were GBX 2,267.00 and GBX 1,489.00, respectively.

On a daily chart, the stock price is sustained very close to the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~34.20 reflects an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

Business Outlook

The business seems to have gained momentum with full-price sales reflecting double-digit percentage growth in Q3FY22, compared to two years ago period. Sales also witnessed an acceleration on the previous quarter, depicting a higher quality business environment. The Group anticipates adjusted operating profit growth in FY22 in the range of ~35%, compared to the prior year. It has maintained the medium-term guidance of high-single-digit growth in top-line and margin accretion. Overall, the company remained confident of achieving its medium-term targets despite the challenging external environment.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the improved business fundamentals, strong customer base, buyback of shares, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Burberry Group PLC at the current market price of GBX 1,492.00 (as on 09 May 2022, at 09:31 AM GMT+1), with lower-double digit upside potential based on 17.48x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.