Burberry Group PLC (LON: BRBY)

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

Recent trend of dividend payments

 (Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by BRBY from FY17 to FY21.  The Company maintains a progressive dividend policy and plans to either maintain or grow the dividend in pence terms year on year. BRBY had paid a final dividend of 42.50 per share on 06 August 2021, while the ex-dividend date was 01 July 2021.

Growth Prospects

• Strong Communication: The Company plans to connect with customers and strengthen the emotional connection with purposeful, authentic luxury storytelling while leveraging its strong network of communities and influencers to amplify the brand across regions.
• Product Strength: The Company plans to leverage the strong luxury offer that it has built while maintaining focus and innovation around its anchors of outerwear and leather goods. The Company will further elevate its ready-to-wear collections by developing a solid position in everyday luxury pieces.
• Improving Distribution Channel: The Company has elevated its store network to align with its luxury positioning. In addition, the Company plans to roll out new store concepts while focusing on local customers. They also plan to build pioneering Social Retail concepts and Supercharge digital sales.

 

Key Risks 

• Increasing Tariff: Most of the Company's revenue are generated from the Asian market. To protect local producers and markets, the developing countries could increase tariffs, which might increase the cost for the Company.
• Evolving demand: The fashion industry and consumer preferences are ever-changing, leading to high inventory costs and a burden on the Company's financials.
• Economic downturn: The economic volatility can impact consumer confidence and spending capacity, which could impact sales of the Company.
  

Now we will analyse some key fundamental and shareholders statistics of Burberry Group PLC.

Trading update (for the Q1FY22, reported on 16 July 2021)

(Source: LSE Website)

• The comparable store sales rebounded strongly, rising 90% vs Q1FY21 and +1% vs Q1FY20.
• The full-price sales growth accelerated to +26% vs Q1FY20 driven by new, younger clientele; exited markdowns in digital and mainline stores.
• After Q1FY22, the Company opened its first flagship carrying the new global design concept in Sloane Street, London and three more flagships to follow over the next year.
• The Company improved the guidance for wholesale revenue, which is now expected to increase by approximately 60% YoY in H1 due to a stronger order book.

Financial Ratios (FY2021)

 Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 27 September 2021, at 12:13 PM GMT+1, BRBY’s shares were trading at GBX 1,822.50, down by around 0.08% from the previous day closing price. Stock 52-week High and Low were GBX 2,267.00 and GBX 1,324.78, respectively.

From a technical perspective, the stock is hovering between the lower Bollinger band and middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI stood at ~40.99, reflecting an upside momentum in the stock price.

Over the last five years, BRBY’s stock has delivered a decent positive return of ~30.86%. Also, it has outperformed the FTSE All-Share Consumer Staples index with a return of about negative 5.99% and the FTSE 100 index with a return of about 3.76%.

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

Business Outlook 

BRBY reported a decent performance in Q1FY22, with retail revenue rising 86% YoY. The Company saw solid growth across regions except for the middle east. The full-price sales accelerated as collections and campaigns attracted new, younger luxury customers to the brand. In addition, the Company saw strong growth across the strategic categories, particularly leather goods and outerwear, and exited markdowns in digital and mainline stores. Despite uncertainty in the global market, the Company remains confident about achieving the medium to long term growth targets.

Considering the improved market outlook, increasing demand for young generations, growth across regions, the better profitability, liquidity than the industry, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Burberry Group Plc at the current price of GBX 1,822.50 (as on 27 September 2021 at 12:13 PM GMT+1), with lower-double digit upside potential based on 26.04x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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