Stock of the day 11/11/2015 – Burberry Group PLC

After a rather unpleasant October Burberry has a big task ahead of it on Thursday as it attempts to reassure investors that all is well at the luxury brand.

Not that Burberry had a fine bill of health before October; after hitting an all-time high at the end of February the company soon found itself on a downward trajectory with nary a moment of respite. After having fallen from that peak of £19.30 to £18 by the middle of May, Burberry’s decline really began to accelerate with its full year figures; downgrading its 2015/16 profit forecasts by £40 million saw the company lop 5% in its stock price on the day of the announcement alone, eventually hitting £15 by the start of July.

Then, just as the stock had begun to recover from another set of disappointing figures (this time in the form of its first quarter report) the aggressively negative China-inspired movements of August got underway. And for such a Hong Kong-exposed company as Burberry, that spelled trouble indeed; losing around 12% for its value in August alone the stock eventually hit a low if £13.09 at the end of September.


(Source: IT-Finance.com 11/11/2015)

As October began, however, things were beginning to look up; the market-wide recovery had taken Burberry back above £15 for the first time since mid-August, and despite a pre-half year results tumble the stock was still over a pound away from its lows. Yet that aforementioned half year report was a disaster; with the slowdown in China having more of an effect than analysts had expected Burberry’s H1 sales growth slowed to a mere 2%, well below the 8% forecast. Even more worrying was the fact that the company had gone from 6% growth in Q1 to a 4% decline in Q2, revealing the extent to which Burberry is dependent on positive trading in China.

Despite the fact the company was adamant that its half year figures did not equate to a profit warning, investors couldn’t help but take it as such, sending the stock lower by 8% to a 2015, and 2 and a half year, nadir of £12.35. And whilst since then Burberry has bounced back slightly, it is still only trading at a current price of £13.27 (IT-Finance.com, 11/11/2015).

With its interim results on Thursday, then, Burberry will have to provide something special to soothe investors’ fears that the current Chinese slowdown isn’t going to have serious long-term ramifications for the company’s performance. Given that Burberry is expected to announce a 7.3% fall in half year pre-tax profit to £141.2 million, however, it might not exactly have the ammo it needs to calm said fears.

Burberry Group PLC has a consensus rating of ‘Hold’ with an average target price of £16.23.