Investment Column: Investors have missed the Burberry boat

Northern Foods; Nordic Land

Our view: Hold

Share price: 427p (+0.25p)

It came as such a relief to most investors that the world was still intact six months ago that many, particularly in the retail sector, started spending with gay abandon.

Of course, the recession has claimed its fair share of retail victims, but for most that remain, there has been no shortage of interest from punters.

The luxury fashion group Burberry is no different, and has seen its stock soar by more than 100 per cent in the last half year. The group, famed for chequered clothes, issued its first-quarter trading statement yesterday, saying that while its wholesale business continues to find the going somewhat tough, retail is flying – sales were up 12 per cent as posh people continue splashing the cash.

Stacey Cartwright, finance director, says that with the group continuing to press through efficiencies, the majority of which are job losses, Burberry is well set for the future. Client destocking is slowing, Ms Cartwright says, and this will help the gross margin in the second half of the year.

The problem for Burberry, and indeed other retailers, is the growing concern that we are likely to see the economy having more difficulties towards the end of the year, especially as unemployment creeps up.

While we think Burberry is a well-run company, of particular concern is that more of the aforementioned posh people have lost their jobs during this recession, relative to previous downturns. We would thus be nervous about just how much juice there is left in the shares.

Some of the analysts argue that the stock already trades at a premium to the rest of the sector, even if it is deserved. While Ms Cartwright points out that other watchers reckon there is a discount in the stock, we would take the opportunity to take profits and wait for cheaper levels to buy into Burberry. Hold.

Northern Foods

Our view: Buy

Share price: 62p (+7p)

It is not just Oliver Twist who should be singing about food, glorious food. Investors who think that Northern Foods might be a bit tasty are also likely to be singing for more, if they buy at today's depressed levels.

The group, which makes branded and own-label foods for the supermarkets, said that its first-quarter sales have been boosted by the good weather, and that full-year targets are on track to be beaten.

The watchers at Evolution reckon that the stock is undervalued trading on 8.9 times earnings, and say that 70p would be a fairer level. What attracts us is the 8.2 per cent dividend yield, which in these times of falling interest rates is a very decent return.

By the group's own admission a series of profit warnings issued several years ago put it on the back foot in relation to the market, and as such it has to work that bit harder to convince investors who have had their fingers burnt in the past.

We harbour no such concerns, and think that an undeservedly undervalued group, in one of the most defensive sectors around, and one that is putting out good numbers, should be an automatic choice for investors. Fill your boots. Buy.

Nordic Land

Our view: Avoid

Share price: 27p (-2.5p)

More often than not, when asked about the share price of his or her company, chief executives straighten the bat and say that the market will dictate the appropriate level.

All very dull.

Not those at the Scandinavian real-estate investment group Nordic Land, who dedicated a whole three paragraphs to the level of the stock, which has dropped by nearly 50 per cent in the past six months, in yesterday's full-year results.

Back to form, the statement argues that the "share price does not reflect the company's performance", and that the brokers have been engaged to find ways of increasing liquidity and adding new investors.

The Nordic region has escaped relatively unharmed in the midst of the financial meltdown that has hit property prices elsewhere. That does not appear to have helped Nordic Land too much, however, judging by the share price.

Despite the company highlighting the fact that "the Nordic real estate markets have performed significantly better than many other countries, and, in particular, the UK," yesterday, the shares fell a further 8.1 per cent.

It is good to see management taking an open approach to the disappointing share price, but we would be tempted to see what the brokers come up with before buying into Nordic Land, especially as the market does not appear to like it very much. Avoid.