Burberry Group PLC

Burberry Group PLC is an FTSE 100 index listed global luxury goods manufacturer, retailer, and wholesaler.

The final dividend with ex-dividend date of 30 June 2022, will be paid on 5 August 2022.

Investment Rationale for Valuation – Hold at GBX 1,546.00

• Positive Guidance: Over the last five years, Burberry has elevated the products and brand experience into luxury space. It anticipates high single-digit revenue growth and margin expansion in the medium-term. It also expects an accelerated growth at the interim results in November 2022.
• Decent Fundamentals: The diluted earnings per share grew 5% YoY in FY22. It maintained cash conversion above 100% in FY22 and delivered dividend growth as well.
• Undervalued Multiples: On a forward 12-month basis – key valuation multiples (EV/Sales, EV/EBITDA, Price/Cash Flow, and Price/Book) are quite undervalued against the average of the Specialty Retailers industry.
• Technical Indicator: The price of the stock seems to be hovering around the lower Bollinger band level with a 14-day RSI level of 44.45.

Key Risks

• Macroeconomic Risk: Markets are likely to remain jittery in the short-term over rising interest rates, the strongest U.S. dollar in two decades, concerns over inflation and possible recession.
• 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.
  

Financial Highlights (for the 52 weeks ended 2 April 2022, as of 18 May 2022)

 (Source: Company Website)

• Financial Growth: During FY22, Burberry reported a 21% and 40% YoY growth in revenue and adjusted diluted earnings per share, respectively.
• Shareholders’ Distribution: The full-year dividend per share of 47 pence grew by 11% YoY, while the Company reaffirmed its intention to to buy back shares worth £400 million in FY23.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Focusrite PLC, Games Workshop Group PLC, and Pittards PLC.

*All selected peers are LSE-listed Companies from the Consumer Discretionary sector.  

Conclusion

Based on the accelerated growth, solid cash conversion, impressive financial performance, optimistic outlook and support from the valuation as done using the above method, we have given a “Hold” recommendation on Burberry Group PLC at the current market price of GBX 1,546.00 (as of 18 May 2022, at 9:25 AM GMT+1).

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.’ 

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 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 unfavorable movement in the stock prices.

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