Burberry (BRBY)

[monabri]

Any interest in Burberry (BRBY) ? Quite a drop on todays trading update.

https://www.investegate.co.uk/announcem ... te/7986482

[BullDog]

Any interest in Burberry (BRBY) ? Quite a drop on todays trading update.

https://www.investegate.co.uk/announcem ... te/7986482

Hmmm. Interesting. A new low for the year and less than half the year high. Yield is a bit low for me to consider. But I can see the attraction. I suppose a lot depends on Chinese consumers getting more interested in the company's products. I'm not sure about that.

Mulberry down in sympathy too.

[vand]

nope.
Never been a fan of the stock or the company. Nick Train can argue all he likes, but it has always been laughable to me how anyone can suggest this brand somehow represents exclusivity and luxury.

[monabri]

nope.
Never been a fan of the stock or the company. Nick Train can argue all he likes, but it has always been laughable to me how anyone can suggest this brand somehow represents exclusivity and luxury.

1001 chavs can't be wrong?.. kwality!

[BullDog]

nope.
Never been a fan of the stock or the company. Nick Train can argue all he likes, but it has always been laughable to me how anyone can suggest this brand somehow represents exclusivity and luxury.

1001 chavs can't be wrong?.. kwality!

Down over (another) 25% in the last 6 months. Not great

[simoan]

1001 chavs can't be wrong?.. kwality!

Down over (another) 25% in the last 6 months. Not great

But doesn’t that mean the dividend yield has increased? I thought that was all that mattered hereabouts. It’s rare that you see such a profitable company look so cheap. The short term price movement provides an opportunity IMO. The market cap is now less than £4bn and it’s on a historic PSR of 1.25 when sales are at a low. The share price is at a 10 year low. That’s starting to look silly cheap. I can’t believe one of the larger European luxury houses is not considering taking it out as I write, And if they did, it would be another big nail in the coffin of UK PLC.

[SalvorHardin]

Down over (another) 25% in the last 6 months. Not great

But doesn’t that mean the dividend yield has increased? I thought that was all that mattered hereabouts. It’s rare that you see such a profitable company look so cheap. The short term price movement provides an opportunity IMO. The market cap is now less than £4bn and it’s on a historic PSR of 1.25 when sales are at a low. The share price is at a 10 year low. That’s starting to look silly cheap. I can’t believe one of the larger European luxury houses is not considering taking it out as I write, And if they did, it would be another big nail in the coffin of UK PLC.

I know we're not supposed to talk about takeover candidates, but I bought a shedload of Burberry recently purely as a recovery / takeover candidate. Shortly afterwards another investment idea appeared on my radar (for which I needed to raise some cash) so I sold a third of my Burberry shares at a small loss. Given the recent media attention given to Burberry's troubles (including the fashion press), it's a cast-iron certainty that the likes of LVMH have considered buying Burberry. Whether they will act upon this is another question.

There is so much negativity out there about Burberry you have to wonder if this is a situation where these two quotations apply: Warren Buffett's "buy shares that the bears are giving away" and Nathan Rothschild's "buy when there's blood in the streets". Or if it's yet another falling knife.

A big risk is Burberry's dependence on Chinese consumers. Quite a bit of hope seems to be placed on the so-called "tourist tax" being repealed to bring back business from Paris and Milan (the law allowing foreign tourists to reclaim British VAT was abolished in 2020). I have strong doubts about this, particularly as we're in election season. Doing so will be portrayed as giving money to "rich tourists" instead of spending it on the NHS.

Anyway, applying strict HYP rules it's a FTSE100 share that yields a touch under 6%. Who cares what its business is?

[monabri]

Well, let's hope there is no takeover until next Friday...I'm planning a BRBY top up on Thursday!

[BullDog]

But doesn’t that mean the dividend yield has increased? I thought that was all that mattered hereabouts. It’s rare that you see such a profitable company look so cheap. The short term price movement provides an opportunity IMO. The market cap is now less than £4bn and it’s on a historic PSR of 1.25 when sales are at a low. The share price is at a 10 year low. That’s starting to look silly cheap. I can’t believe one of the larger European luxury houses is not considering taking it out as I write, And if they did, it would be another big nail in the coffin of UK PLC.

I know we're not supposed to talk about takeover candidates, but I bought a shedload of Burberry recently purely as a recovery / takeover candidate. Shortly afterwards another investment idea appeared on my radar (for which I needed to raise some cash) so I sold a third of my Burberry shares at a small loss. Given the recent media attention given to Burberry's troubles (including the fashion press), it's a cast-iron certainty that the likes of LVMH have considered buying Burberry. Whether they will act upon this is another question.

There is so much negativity out there about Burberry you have to wonder if this is a situation where these two quotations apply: Warren Buffett's "buy shares that the bears are giving away" and Nathan Rothschild's "buy when there's blood in the streets". Or if it's yet another falling knife.

A big risk is Burberry's dependence on Chinese consumers. Quite a bit of hope seems to be placed on the so-called "tourist tax" being repealed to bring back business from Paris and Milan (the law allowing foreign tourists to reclaim British VAT was abolished in 2020). I have strong doubts about this, particularly as we're in election season. Doing so will be portrayed as giving money to "rich tourists" instead of spending it on the NHS.

Anyway, applying strict HYP rules it's a FTSE100 share that yields a touch under 6%. Who cares what its business is?

It's only paying 6% until the dividend gets "rebased". I have mixed feelings about Burberry and haven't bought the shares. What the likelihood of a dividend cut actually is, I don't know.

[SalvorHardin]

It's only paying 6% until the dividend gets "rebased". I have mixed feelings about Burberry and haven't bought the shares. What the likelihood of a dividend cut actually is, I don't know.

There's always a chance of a dividend cut, but this should be built into the share price (and is a major factor as to why the yield has increased to 5.9%).

Burberrry have already sneaked in what I would call a cut, though the press says otherwise. The recently announced final dividend is 42.7p; one year ago it was 44.5p. This isn't reported as a cut because the annual dividend remained constant at 61.0p as the interim dividend had been increased from 16.5p to 18.3p.

As Warren Buffett said "you pay a very high price in the stock market for a cheery consensus". If the outlook for Burberry was positive (and much clearer), instead of there being a lot of doom and gloom, this thread probably wouldn't have appeared on HYP Practical because the share price would be a lot higher.

Tthe luxury goods market is odd IMHO. I (and I suspect many others on TLF) are not even close to being in the target market for the vast majority of goods which we consider to be very expensive for what you get. But some people are happy to pay these prices. Yet attitudes towards fashion can be fickle. Even today lots of people still consider the Burberry check to be "chav" (as seen earlier in this thread) yet it's still popular, particularly in the Far East.

[simoan]

I know we're not supposed to talk about takeover candidates, but I bought a shedload of Burberry recently purely as a recovery / takeover candidate. Shortly afterwards another investment idea appeared on my radar (for which I needed to raise some cash) so I sold a third of my Burberry shares at a small loss. Given the recent media attention given to Burberry's troubles (including the fashion press), it's a cast-iron certainty that the likes of LVMH have considered buying Burberry. Whether they will act upon this is another question.

There is so much negativity out there about Burberry you have to wonder if this is a situation where these two quotations apply: Warren Buffett's "buy shares that the bears are giving away" and Nathan Rothschild's "buy when there's blood in the streets". Or if it's yet another falling knife.

A big risk is Burberry's dependence on Chinese consumers. Quite a bit of hope seems to be placed on the so-called "tourist tax" being repealed to bring back business from Paris and Milan (the law allowing foreign tourists to reclaim British VAT was abolished in 2020). I have strong doubts about this, particularly as we're in election season. Doing so will be portrayed as giving money to "rich tourists" instead of spending it on the NHS.

Anyway, applying strict HYP rules it's a FTSE100 share that yields a touch under 6%. Who cares what its business is?

It's only paying 6% until the dividend gets "rebased". I have mixed feelings about Burberry and haven't bought the shares. What the likelihood of a dividend cut actually is, I don't know.

It's a shame we can only really discuss the investment case based on the level and sustainability of the dividend in this forum. It is possibly the weakest reason to invest in Burberry. You really need to understand how operational gearing works when it changes direction. The first sign that the worm has turned (possibly later this year) and the share price will be north of £12 on the same day IMHO; assuming it is still an independent listed company by then. I think it's very rare that a HYP has the chance to acquire a company with Gross Margins of 70% that turns almost all earnings into free cashflow, and that even in a bad year managed to buyback 6% of its own shares.

All the best, Si

[BullDog]

It's only paying 6% until the dividend gets "rebased". I have mixed feelings about Burberry and haven't bought the shares. What the likelihood of a dividend cut actually is, I don't know.

It's a shame we can only really discuss the investment case based on the level and sustainability of the dividend in this forum. It is possibly the weakest reason to invest in Burberry. You really need to understand how operational gearing works when it changes direction. The first sign that the worm has turned (possibly later this year) and the share price will be north of £12 on the same day IMHO; assuming it is still an independent listed company by then. I think it's very rare that a HYP has the chance to acquire a company with Gross Margins of 70% that turns almost all earnings into free cashflow, and that even in a bad year managed to buyback 6% of its own shares.

All the best, Si

Thank you. I appreciate your input on this one.

[chris]

even in a bad year managed to buyback 6% of its own shares.

And increased its net debt by £665M!

[BullDog]

even in a bad year managed to buyback 6% of its own shares.

And increased its net debt by £665M!

That's exactly the kind of thing that has me wondering about a "rebased" dividend to come from Burberry. They often come out of the blue. I am tempted but don't feel confident enough to buy.

[simoan]

even in a bad year managed to buyback 6% of its own shares.

And increased its net debt by £665M!

Yes but it’s investing in the business as well. Net Debt to EBITDA is 1.4x which is easily affordable for such a cash generative company.

[IanTHughes]

It's a shame we can only really discuss the investment case based on the level and sustainability of the dividend in this forum. It is possibly the weakest reason to invest in Burberry.

Well, on a forum dedicated to discussing the High Yield Portfolio (HYP) strategy, the sustainability of the dividend is considered rather important. Of course, for investors new to HYP, this can be a difficult concept to understand.

You really need to understand how operational gearing works when it changes direction.

Sorry, you will have to ask someone else for an explanation of “Operational Gearing”, I just do not have the time. I will quickly point out that “Operational Gearing” is a ratio, and as such it does not ”change direction”. It can indeed useful for determining Dividend Sustainability.

The first sign that the worm has turned (possibly later this year) and the share price will be north of £12 on the same day IMHO; assuming it is still an independent listed company by then.

What is this worm that you believe will turn? Why will the turning only take place ”later this year”?

I think it's very rare that a HYP has the chance to acquire a company with Gross Margins of 70% that turns almost all earnings into free cashflow, and that even in a bad year managed to buyback 6% of its own shares.

On the contrary, this is entirely the kind of share sought out for an HYP. Again, you will have to ask someone else for an explanation of the HYP strategy, I really do not have the time right now.

-------------------
Whether Burberry PLC (BRBY) should be selected for inclusion in an HYP does present a bit of a conundrum.

First, although the dividend has been increasing over the years, its High Yield credentials have only been created as a result of its Share Price falling around 50% over the past 12 months. The latest downward pressure on the price came after the Profits Warning issued in January:

https://www.yahoo.com/lifestyle/burberr ... 08622.html
https://finance.yahoo.com/news/burberry ... 25503.html

Secondly, the now realised fall in profits of around 40%, as a result of deeply falling sales in its main market of China and the Far East, does not provide a positive picture, which is also not helped by the resultant increase in borrowing required.

https://www.burberryplc.com/investors/a ... port-23-24
https://finance.yahoo.com/news/burberry ... 30425.html

On the other hand, with a net cash position that is still positive, possibly helping to support what was at least a held annual dividend, can things be said to be that bad?

I have yet to review the recent Annual Results in detail, but it does seem to me that a reversal in the recent drop in sales will be needed to improve the possibility of a sustainable dividend going forward. What I have read from others is that, while an increase in sales from now is thought likely, it may not be that sufficient to fully reverse the previous fall - (sorry, I cannot find the link right now).

Time will tell, but for now, I think one must at least await a more positive Trading outlook.

Enjoy!


Ian

[simoan]

And increased its net debt by £665M!

That's exactly the kind of thing that has me wondering about a "rebased" dividend to come from Burberry. They often come out of the blue. I am tempted but don't feel confident enough to buy.

There is no progressive dividend policy so just concentrating on the dividend misses the point, although its ability to pay a dividend is far better than most companies that qualify for HYP. For FY23 just gone, the company paid a 61p dividend which was easily covered by 81p of FCF per share. Many HYP companies do not have that benefit even in a good year but that probably doesn’t stop it being held in a HYP. FWIW the current forecast for next year is for a dividend cut to 50p. I expect there to be a Q1 trading update on Friday 12th July. IMO No need to act until then.

[simoan]

It's a shame we can only really discuss the investment case based on the level and sustainability of the dividend in this forum. It is possibly the weakest reason to invest in Burberry.

Well, on a forum dedicated to discussing the High Yield Portfolio (HYP) strategy, the sustainability of the dividend is considered rather important. Of course, for investors new to HYP, this can be a difficult concept to understand.

You really need to understand how operational gearing works when it changes direction.

Sorry, you will have to ask someone else for an explanation of “Operational Gearing”, I just do not have the time. I will quickly point out that “Operational Gearing” is a ratio, and as such it does not ”change direction”.

The first sign that the worm has turned (possibly later this year) and the share price will be north of £12 on the same day IMHO; assuming it is still an independent listed company by then.

What is this worm that you believe will turn? Why will the turning only take place ”later this year”?

I think it's very rare that a HYP has the chance to acquire a company with Gross Margins of 70% that turns almost all earnings into free cashflow, and that even in a bad year managed to buyback 6% of its own shares.

On the contrary, this is entirely the kind of share sought out for an HYP. Again, you will have to ask someone else for an explanation of the HYP strategy, I really do not have the time right now.

-------------------
Whether Burberry PLC (BRBY) should be selected for inclusion in an HYP does present a bit of a conundrum.

First, although the dividend has been increasing over the years, its High Yield credentials have only been created as a result of its Share Price falling around 50% over the past 12 months. The latest downward pressure on the price came after the Profits Warning issued in January:

https://www.yahoo.com/lifestyle/burberr ... 08622.html
https://finance.yahoo.com/news/burberry ... 25503.html

Secondly, the now realised fall in profits of around 40%, as a result of deeply falling sales in its main market of China and the Far East, does not provide a positive picture, which is also not helped by the resultant increase in borrowing required.

https://www.burberryplc.com/investors/a ... port-23-24
https://finance.yahoo.com/news/burberry ... 30425.html

On the other hand, with a net cash position that is still positive, possibly helping to support what was at least a held annual dividend, can things be said to be that bad?

I have yet to review the recent Annual Results in detail, but it does seem to me that a reversal in the recent drop in sales will be needed to improve the possibility of a sustainable dividend going forward. What I have read from others is that, while an increase in sales from now is thought likely, it may not be that sufficient to fully reverse the previous fall - (sorry, I cannot find the link right now).

Time will tell, but for now, I think one must at least await a more positive Trading outlook.

Enjoy!


Ian

What a horribly aggressive post. I just can’t be bothered to reply to the points you make as I have no wish to discuss further with you. However, you should really try to understand what operational gearing is and how it works for a company with 70% gross margins and 20% operating margins.

[IanTHughes]

I have no wish to discuss further with you.

Not even an explanation of that turning worm? What a shame, I was looking forward to that!

However, you should really try to understand what operational gearing is and how it works for a company with 70% gross margins and 20% operating margins.

Although I do indeed understaand it, as I have already said, you will have to ask someone else for the explanation that you need, I am too busy right now.

Enjoy!


Ian

[simoan]

even in a bad year managed to buyback 6% of its own shares.

And increased its net debt by £665M!

Just to be entirely clear here, the company did not take on any additional debt. All that happened to increase net debt is that they drew down on the £1bn of cash on the balance sheet at end of FY23 to buy shares, pay the dividend and invest in the business. And much of what counts as debt these days is only lease liabilities.