Burberry surges but house builders hold FTSE back

Added 13th July 2016

Burberry Group shares spiked by over 7% on Wednesday after a better than expected sales update was released to the market.

Burberry surges but house builders hold FTSE back

Sales fell 3% on a like-for-like basis while revenues were steady at £423m, which both beat expectations. Investors were further cheered by forecasts of improved profits resulting from a weaker pound.   

The clothing and handbag maker with its price sensitive goods is an example of the sort of company which stands to benefit from the fall in the value of sterling.

“Burberry has revealed the scale of the challenge facing new chief executive Marco Gobbetti as it updated the market on its first quarter performance this morning,” said Helal Miah, investment research analyst at The Share Centre. “However, investors should acknowledge that the drop in sales was less than expected, while revenue beat consensus estimates. Burberry says the trading environment remains challenging but is confident that changes to management roles at the top should be supportive of growth ahead, as it plans to cut costs, narrow ranges and focuses on online sales.”

Helal noted it is not all good news for the company though, so urged caution.

“While Asia Pacific performance showed some improvements, the continued fall in Hong Kong and the slowdown in China is still concerning and it is the key reason why we continue to recommend Burberry as a ‘hold’ at present. This is a stock for investors seeking a balanced return who are willing to accept a higher level of risk.”

Despite the big gains made by Burberry the overall direction of travel for the FTSE on Wednesday morning was virtually flat, gaining 4 points to sit at 6685.

This lacklustre performance was in large part due to the house builders including Barratt Developments and Berkley Group which fell 1.4% and 2.8% respectively on continued worries related to Brexit.

Sterling meanwhile regained more ground on improved investor sentiment developing from Theresa May’s appointment as Prime Minister. As of midday the pound was up a quarter of a percent to $1.32. 

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Alex Sebastian

News editor

Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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