The Investment Column: Burberry looks set to shine as it celebrates its 150th birthday

Gaming VC still a good bet as marketing blitz pays off; Savills fixes it for City super-rich
Click to follow
The Independent Online

This year, which is Burberry's 150th jubilee, looks set to be a good one for shares of the luxury goods group. The company unveiled an 11 per cent increase yesterday in quarterly sales at its key retail division.

The three months to the end of December, which take in the festive period, are vital to the company as is its retail business - it accounts for two-thirds of total sales.

Burberry's performance was boosted by the acquisition of new stores in places such as Taiwan, California and Florida, along with the cold snap in the UK's weather - which renewed interest in some of the company's classic styles.

But the company's trading update was by no means flawless. Its wholesale business, which sells clothes to department stores around the world, suffered a 21 per cent drop in sales. This was caused by one-off changes in the timing of shipments to key customers but, this blip aside, the future looks bright for Burberry.

This spring will see the launch of Burberry London, a perfume that is to be supported by the company's first ever global television advertising campaign. The campaign will feature the Hollywood actress Rachel Weisz.

On the earnings front, City brokers are forecasting strong growth over the next two years. Merrill Lynch expects Burberry to enjoy a 43 per cent increase in earnings per share between 2006 and 2008 - twice the average for the sector. This performance would be driven by the group's ongoing share buy-back programme and a restructuring of its supply chain and IT systems, Project Atlas, which should deliver efficiency gains and cost savings worth about £20m a year.

Shares in Burberry dropped 6.25p to 431p after yesterday's trading statement, leaving them trading at 17 times forecast earnings for next year.

That is inexpensive, given the growth that is on the way at Burberry and the fact that the company is currently trading at a discount to the wider luxury goods sector, in which the likes of Gucci, LVMH, Hermes and Bulgari enjoy an average rating of 22 times. Buy.

Gaming VC still a good bet as marketing blitz pays off

Gaming VC, the online casino and poker site operator, came out yesterday with a strong trading statement for December. It reaped the benefits of a €1m (£700,000) marketing campaign over the summer, which it instigated after revenues started to dip in the early part of last year.

The company bought its website from a German entrepreneur when it floated in December 2004 at 420p, one of the biggest floats on AIM that year. The shares initially rose strongly but fell back when revenues slipped due to a lack of advertising.

While daily revenues in December were ahead of the company's expectations at €107,600, they were behind €110,700 in November and also down 8 per cent from December 2004. On the bright side, customer registrations were up 17 per cent to 4,270, while the number of players that put down a deposit rose 12.8 per cent.

Gaming VC, with about 100,000 customers, is the number one online casino and poker company in Germany and Austria. As a marketing tool, it distributes two magazines free of charge to its players, Casino Club and Roulette.

The company benefits from low operational gearing, as it pays a fixed royalty to its website host, Boss Media. A dividend payout is possible if current growth continues, although there is a real risk of revenues falling short of expectations given the volatility of a casino. At 424p, hold.

Savills fixes it for City super-rich

No matter what the broader residential property market does, Savills' business just seems to get juicier, sitting at the top end of the market. Its staff will share a bonus pool of more than £80m for 2005 (up from £70m the year before), even though some housebuilders have described it as the worst market for 30 years. Aubrey Adams, the chief executive, says 2006 should be even better.

A trading update from the company yesterday showed that its other divisions, including commercial real estate and property management, were also doing very nicely. Results for 2005, when published, will be ahead of expectations, Savills said. That led the house broker ABN Amro to raise its profit forecasts by 7 per cent.

The prime residential market had a slow start last year but in the second half it really gathered pace, ending 2005 in spectacularly good form. With bumper City bonuses being paid now, a huge lump of money is hitting the top end of the market. After sports cars, flats in Chelsea, Kensington and other fashionable parts of London and country homes are the favourite destination for City bonuses.

Mr Adams notes that the bonus bonanza in the City makes anything Savills' people might make seem "quite modest". Still, the top 40 or 50 people at the estate agency will get bonuses of £250,000 or more, with a few lucky individuals picking up £1m-plus.

With money flowing into commercial property investment and nothing to stop the prime residential bandwagon, Savills shares, at 990p, have further to go. Buy.