Burberry recommended as a ‘hold’ as China growth prospects remain a concern
Category: Investments, Shares
As Burberry reports its second half results, Helal Miah, our investment research analyst, explains what they mean for investors:
- Second-half trading sees strong performance in China and the UK, but tough US conditions weight down results
- Looking ahead, the slowdown in China remains a concern
- We recommend Burberry as a ‘hold’ for medium to higher risk investors seeking a balanced return
Second-half trading at Burberry saw total underlying revenues down 1%, which was short of market expectations. There were better trading conditions in the Asia Pacific region and an exceptional performance in the UK, no doubt helped by travelling tourists taking advantage of the weaker pound. Meanwhile there were also some notable improvements in Europe. But it seems there were very different conditions in North America where underlying sales fell by 10%, with the strength of the US dollar taking the blame.
Looking ahead to 2018, Burberry expects not to expand its retail space. In its Beauty operation it anticipates with the recent announced strategic partnership with Coty to transition from a wholesale to a licensing business model. Due to this transition Burberry is expecting its Wholesale operation revenue to be lower in the first half, however excluding this it anticipates underlying revenue to be unchanged year-on-year.
Going forward, the management expect cost controls will be a bigger feature while conditions remain tough. They plan on making £100m annual cost savings by 2019.
While there has been improvement recently in China and the Hong Kong markets, growth prospects in the region remain a concern and this is the key reason why we continue with our ‘hold’ recommendation on the stock. This is a stock for investors seeking a balanced return who are willing to accept a medium to higher level of risk.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Advice team arrive at their views please read our Investment Research Policy.