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Why Burberry’s woes may be good news for investors
A shock profit warning from the luxury goods maker has sent shares plummeting 22%, but for managers at Schroders and Franklin Templeton it could be no bad thing.
Burberry’s shock profit warning has caused its shares (BRBY.L) to plummet 22% today, as the luxury good maker faces tough market conditions and consumers rein in spending.
Group chief executive Angela Ahrendts announced to the market that as sales slowed the group will now have to cut its costs, and she expects profits for the year to scrape in at the bottom of market expectations.
However, Richard Buxton, head of UK equities at Schroders, isn’t so concerned about the company’s woes.
‘In a funny sort of a way I’m almost more relaxed, as my concerns about Burberry haven’t been about sales. In the short term trading will be what it will be, with slowing global activity,' he said.
‘But I have been a little bit worried that they have been doing so well and generating so much cash, and they’ve got cash on the balance sheet, that maybe some of the discipline on cost control was slipping a little bit.’
Buxton manages the Schroder UK Alpha Plus fund where Burberry makes up 2.9% of the portfolio, which features in Citywire Top Stocks, and the Schroder UK Growth fund, an investment trust with a 3.3% holding in the luxury goods maker.
The shares popped into the top-10 holdings of the Schroder UK Alpha Plus fund earlier this year.
‘[Burberry] sort of bounced in and out of the top 10. I added to it at very start of the year. It had rallied 30% by the end of March, and I actually sold the bit I had added.’
Mark Hall, manager of the Franklin UK Select Growth fund, also says the fall in the shares hasn’t deterred him from investing in the stock after buying into the company in July this year when shares dipped on slow first-quarter sales growth.
‘We bought this stock at a 25% discount from a recent high, and see it as a long-term growth stock within the portfolio. Clearly, there are some headwinds, but management have done a good job building the brand and the balance sheet remains strong,' Hall said.
‘The position we took was a very small proportion of the total assets under management within the fund. We will analyse any further price weaknesses and may even look to add to the stock.’
Buxton sees Burberry’s market warning as a responsible move. ‘The fact that they’ve had to announce that sales have slowed and profits will be slightly lower than expected, does mean that will force the focus back on costs and managing the business tightly and so it could be the classic stich in time that saves nine.’
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by Gavin Lumsden on Dec 10, 2013 at 16:51