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.

On 18 May 2022, BRBY will release FY22 preliminary results.

Recent trend of Dividend Payments

The Company has a progressive dividend policy of paying its shareholders and reinstated interim dividend during H1 FY22. 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

• 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.

 

(Analysis done by Kalkine Group) 

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.
• FOMC Meeting Minutes: The Federal Open Market Committee's meeting minutes indicated that the Federal Reserve is preparing to move aggressively to head off inflation.
• Record UK Inflation: British inflation hit a 30-year high of around 6.2% in February 2022, which may cause a further interest rate hike.

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 as of 31 March 2022.              

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

(Source: Company Filings)

• Trading Performance: Burberry reported a strong underlying performance in the Q3 FY22, while the full-price sales jumped in a double-digit percentage.
• Share Buyback: The £150 million share buyback progressed well and is expected to complete before the year-end.
• Strong Demand: The leather goods and outwear categories performed well on the back of solid customer demand.

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

(Source: Company Filings)

• Strong Growth: Burberry made an excellent start to H1 FY22 and witnessed a robust year-on-year sales growth of around 45% at constant exchange rates during H1 FY22.
• Free Cash Flow: The Company had reported a Free cash inflow of £104 million during H1 FY22 with cash conversion of over 100%. In comparison, BRBY had reported a cash outflow of £45 million for an equivalent period of the prior year.
  

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 11 April 2022 at 12:56 PM GMT+1, BRBY’s shares were trading at GBX 1,566.50, down by around 2.15% from the previous day’s closing price. Stock’s 52-week High and Low were GBX 2,267.00 and GBX 1,534.50, 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 ~38.69 reflects an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

Burberry Group had shown accelerated progress during Q3 FY22, with significant growth in full-price comparable store sales. Moreover, BRBY anticipates adjusted operating profit to grow in the range of 35% during FY22 when compared with FY21. Burberry is confident of achieving its medium-term targets despite the challenging external environment as it continues to show growth across core strategic categories. In a nutshell, the Company remained committed to achieving medium-term guidance for high single-digit top-line growth and meaningful margin accretion at constant exchange rates during FY22.

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 market outlook, growth across regions, the better profitability and liquidity ratios 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 market price of GBX 1,566.50 (as of 11 April 2022 at 12:56 PM GMT+1), with lower-double digit upside potential based on 20.16x Price/NTM Earnings (approx.) on FY22E 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.

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