Berkeley disappoints while Burberry beats expectations

“It’s not quite the end to the week that investors had hoped, with markets across Europe failing to sustain yesterday’s positive momentum,” says Russ Mould, Investment Director at AJ Bell.

“However, markets are still ahead on the week and the recent sell-off in tech stocks looks like it has stabilised which is important for investor sentiment.

“The FTSE 100 dipped 0.3% to 6,715. Strength among banking and energy stocks wasn’t enough to offset weakness in miners and housebuilders, the latter falling after a gloomy update from Berkeley Group.

“The standout market of the day was Japan where the Nikkei jumped 1.7%, a somewhat delayed reaction to the US $1.9 trillion stimulus being signed and a weak yen giving support to exporters. The top riser was e-commerce group Rakuten, up 8.6% after announcing plans to raise $2.2 billion to support expansion plans. As part of this fundraise, Japan Post will take an 8.3% stake in the business.”

Berkeley

“Of all the housebuilders Berkeley seems the least bullish. A flat performance in its financial year to February 2021 is testament to how impressively the business recovered from the pandemic in the second half.

“But while Berkeley still has strong levels of enquiry it is phasing developments to coincide with a reopening of the economy. This may look very clever in time if it sees Berkeley deliver a smoother flow of profit and cash flow than its peers, many of which seem to be operating at 100 miles an hour.

“And given Berkeley has previously earned a reputation for calling the housing market successfully, albeit under its late chairman Tony Pidgley, this might provoke some concern among its rivals.

“On the flipside Berkeley could miss out on some of the demand created by the current stamp duty holiday which is due to end in September – even if the elevated average selling price on its high-end homes makes this a less relevant consideration than for some other housebuilders.

“Whatever the disappointment about the current year’s guidance from Berkeley no one could argue its credentials as an income stock rest on anything other than very firm foundations – the impressive visibility it provides on dividends backed by an extremely strong balance sheet.”

Burberry

“Burberry has been strutting down the catwalk with quite a pose since the latter part of 2020 as its earnings recovery takes shape. Its latest update shows that trading is better than expected which is impressive given that this is likely to be just the first stage in a multi-phase bounce back.

“A lot of its business has historically come from Asian tourists taking trips across Europe. They like to spend big and its products are highly desirable. The restrictions on international travel are only in the nascent stages of being lifted and the return of tourist-related sales may not pick up in earnest until 2022.

“Therefore, current sales are likely to be driven by domestic customers. In January it flagged good full-price sales in places like the Americas, mainland China and Korea.

“As more regions start to come out of lockdown restrictions, there is a sense that we could see a huge spending spree as a lot of people fortunate to have been working throughout the pandemic may have amassed considerable spare cash.

“The idea that we could see the Roaring Twenties is very real and luxury goods companies such as Burberry could be major beneficiaries.”

These articles are for information purposes only and are not a personal recommendation or advice.