Burberry Group Plc (BRBY) manufactures, retails, wholesales and sells luxury goods. It markets and sells accessories, men's and women's apparels, children wear, beauty and other products. In addition to this, it also offers sunglasses, watches, leather goods, handbags and beauty products. The company markets these products under the Burberry brand. It distributes these products through a diversified network of retail, wholesale and licensing channels worldwide and manages its business operations through Burberry mainline stores, outlets, concessions store, digital commerce platforms, franchisees, department stores and multi-brand speciality account stores. As per the latest data available on the company website, Burberry Plc had 237 retail stores, 46 franchise stores and 151 concessions. Its shares are listed on the London Stock Exchange, and the company has issued Level 1 ADR to enable American investors to subscribe Burberry's shares.  Burberry Group Plc was formed in the year 1856 and is headquartered in London, the UK.

Key Statistics

Top Shareholders

(Source: TR)

Key Developments

On 6th February 2019, Company announced that Jeremy Darroch had shown his intention to step down from the post of Chairman of Audit Committee immediately from 06th February 2019. He will remain as Senior Independent Director on the Board of Burberry Group Plc. On 23rd January 2019, Burberry reported its third-quarter trading update. On 8th November 2018, Company reported its interim half-yearly results for the period ended 29th September 2018.

Key Managerial Employees

(Source: Annual Report FY18)

Key Takeaways from Q3 FY19 Trading Update

For the quarter ended on 31st December,18, company reported total sales of GBP 711 million, down by 1% as compared with the corresponding quarter of the previous year in which total sales stood at GBP 719 million. Comparable store sales were up by 1% on account of consistent performance across the regions. The Asia Pacific benefited due to the mid-single-digit sales growth in Mainland China. EMEIA region showed a small improvement in tourist spending quarter on quarter. The company is all set to launch Riccardo's debut runway collection arriving in stores from late Feb,19. They are focusing on their new go to market strategy and launched an exciting collaboration with Vivienne Westwood in December. The limited-edition collection of Westwood’s iconic pieces reimagined in Burberry vintage check, saw a strong global demand and attracted exceptionally high traffic to their digital platform. Wholesale clients responded positively to Riccardo's commercial product lines, and excitement is building ahead of its debut runway collection arriving in stores in late February. As per the company's third-quarter presentation, globally Burberry has 237 retail stores, 151 concessions and 52 outlets and 46 franchise stores. BURBERRY, the Burberry Check, the Equestrian Knight Device, Thomas Burberry Monogram and Print are trademark belonging to Burberry.
 

Stock Performance – 1 Year

Daily price chart as on March-05-2019, before market close. (Source: TR)

At the time of writing (as on 05-Mar-2019) before the market closes, shares of Burberry Plc were quoting at GBX 1,945.5, fell by 7.5 points or 0.38% against its previous day close. In the last one-year period shares have registered a 52w high of GBX 2,347.27 and a 52w low of GBX 1,611.0. At the time of writing, shares were trading 16.8% lower against its 52w high and 21.2% above its 52w low, that indicates shares are trending towards its 52w high. On a one-year basis stock has delivered a return of 19.49%, and on a year-to-date basis, the stock is up by 12.53% (as at March 05, 2019). At a simple moving average (SMA) standpoint, the stock is trading above its 30 Day SMA and 60 Day SMA, by 3.6% and 8.02% and trading a bit lower against its 200 Day SMA respectively. Stocks 5-Day average volume traded on the London Stock Exchange was 9.75% higher than the 30-Day average volume traded on the LSE. Stock’s Beta of 1.38 make shares of Burberry Plc high volatile against the benchmark index. Burberry's Dividend yield stood at 2.1%, which is relatively high among its peer group. Company's outstanding market capitalisation of £8.04 billion ranks it among the large-cap stocks.

Financial Ratios and Valuation Methodology

Ratios

(Source: TR)

Commentary

The company has delivered consistently an EBITDA margin above 20% since last many years which shows the fundamental strength of a company. This trend is uncommon and indicates management efficiency as well. Operating margin for FY18 of 15% was above its peers median and also improved 70bps against its previous year operating margin. At Return on Equity standpoint (ROE), Burberry's ROE for FY18 was a bit lower than the industry median, but it has delivered a ROE above 15% since last many years which again an excellent measure to judge the fundamental strength of company. Burberry's liquidity position in terms of current ratio is significantly above its peers median, Current ratio of 2.8 for FY18 shows the company has sufficient assets to finance its short-term debt liabilities. Burberry is comparatively less financially leveraged compared to its peers operating within the same line of businesses. Long-term Debt to Total Capital of the company was zero compared with the industry median of 8.8%.

Valuation Methodology (EBIT (FY19E) approximately)

 
While valuing Burberry on EV/EBIT based valuation, we have considered NTM EV/EBIT multiple of its peers which are Kering SA (NTM EV/EBIT of 16.7x), LVMH Moet Hennessy Louis Vuitton SE (NTM EV/EBIT of 16.x), Compagnie Financiere Richemont SA (NTM EV/EBIT of 18x), The Swatch Group AG (NTM EV/EBIT of 14.8x), Tod's SpA (NTM EV/EBIT of 22x), and Prada SpA (NTM EV/EBIT of 20x) respectively.
 
Note: All forecasted figures and peers have been taken from Thomson Reuters.

Conclusion
Burberry Plc has strong fundamentals compared with its peers among the industry, Consistent EBITDA margin above 20% and ROE above 15% since last 5 years make it hot within the sector in which it operates. Based on above valuation methodology, we have given a BUY recommendation with single digit upside potential (based on NTM EV/EBIT of 17.5 on FY19E EBIT).

*The buy recommendation is valid for the current price as covered in the report as on (5th March 2019).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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