Investment Column: Burberry's price tag makes us wary
Tuesday 19 April 2011
Our view: hold
Share price: 1146p (-9p)
Burberry, the luxury goods group, is expected to maintain its strong momentum by posting a sharp uplift in second-half sales today.
The group, which has six stand-alone stores and nine concessions in the UK, is likely to boast of a robust performance across all its divisions and regions. The consensus forecast is for Burberry to fashion a 25 per cent rise in total revenues to £824m over the half-year, with its rapid growth story in China set to be a key driver.
Following its acquisition of 50 franchise stores in China in September, Burberry said it had grown like-for-like sales by 30 per cent at these shops in the three months to 31 December.
The City will also be keen to hear about the impact of the earthquake on its activities in Japan, where the fashion brand has two stand-alone stores, 14 concessions and a licence business, which accounts for the majority of revenues from the three units.
RBS analysts see "increased downside risk" to licence sales and operating profit contribution from Japan in its financial year ending in 2012.
However, Burberry has plenty of growth avenues – including increased space in London ahead of the 2012 Olympics – in other regions ahead of it under its highly regarded chief executive, Angela Ahrendts, who has delivered a strong turnaround in performance since joining in 2006.
That said, Burberry's shares – which are up by more than 60 per cent in the past year – have also been buoyed by persistent bid speculation. Given the valuation of 21 times forward earnings for 2012, we think such a takeover scenario is unlikely. This reinforces our view that Burberry's shares are well worth buying, but only when they have cooled down a bit.
Jupiter Fund Management
Our view: buy
Share price: 291p (+2.3p)
Jupiter's quarterly figures were welcomed by the market yesterday, and rightly so. The fund manager attracted net inflows of £333m, with increased interest from international investors and strong demand for its fund-of-fund range.
Assets under management climbed to £24.5bn in the three months to the end of March and chief executive Edward Bonham Carter expressed cautious satisfaction.
"Against a backdrop of volatile markets and falling UK consumer disposable income, Jupiter has had a steady start to 2011," he said.
After coming to market last June at 164p, Jupiter's shares have had a steady rise, topping 300p a few weeks ago. With staff still owning almost half the business, they've got a real stake in helping it to continue to be successful.
The first quarter's net inflows are an encouraging sign in the current volatile investment world. They may look a little disappointing compared with earlier quarters, but the lower figure is simply a reflection of the more challenging times faced by the industry.
It actually points more to the untapped retail investment yet to return to the markets that Jupiter is poised to attract. For that reason, the future is likely to be positive for the company, giving us confidence in the outlook for its shares.
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