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Investors cheer Burberry, mourn HMV
by Chris Marshall on Jan 15, 2013 at 08:55
Luxury fashion retailer Burberry (BRBY.L) shot to the top of the FTSE 100 on Tuesday morning after reporting strong Christmas sales – but another high street collapse stole news headlines, with HMV (HMV.L) calling in the administrators.
Earnings move markets
The corporate reporting season continues to dominate markets on both sides of the Atlantic, offering a pause from the global economic guessing game, and this morning the direction was downwards.
There were declines on Wall Street overnight after Apple shares fell amid worries over demand for the company’s products. Asian markets were mostly higher, but European indices followed the US lower. Britain’s range-bound FTSE 100 dipped slightly, clinging on one point above the 6,100 mark, while the Eurofirst 300 fell 0.2% and the euro dipped 0.2% to $1.3353.
Investors were watching comments from senior policymakers around the world. In the US Federal Reserve chairman Ben Bernanke provided little new information about the central bank’s plans. In Japan, Bank of Japan governor Masaaki Shirakawa said the central bank could pursue aggressive monetary easing, but economy minister Akira Amari expressed concerns over the impact of an excessively weak yen.
Long-suffering HMV suspended its shares in a statement on Tuesday morning, announcing that it had been unable to raise more cash to save the company and prevent it falling into administration.
The music and DVD retailer will continue to trade while administrators Deloitte attempt to find a buyer, HMV said in its statement.
The move marks a grim start to the year for British companies, with Jessops also filing for administration last week.
Business recovery group Begbies Traynor warned of more high street casualties to come. ‘With 140 UK retailers already on our ‘critical’ watchlist… HMV's administration should be a warning shot to the high street that bricks and mortar retail will not be propped up in the face of a migration to online retail and digital products,’ said Julie Palmer, a partner at the firm.
Burberry bounces back
Burberry investors were enjoying a much brighter morning, with shares up by 6% to £14.06 after the group announced a 9% rise in third-quarter underlying revenues, beating forecasts.
‘In an otherwise difficult quarter, core outerwear, men's and digital all outperformed,’ said Angela Ahrendts, Burberry chief executive officer, of the performance for the last three months of 2012.
The results will go some way to reassure investors after a shock profit warning in September which caused Burberry shares to plummet 22% in one day.
‘We still consider Burberry a strong long-term growth story with significant geographical and product mix opportunities,’ commented Kate Calvert of Seymour Pierce this morning. ‘Given the recent rally in the shares, they may consolidate around this area short term,’ she added, maintaining her ‘buy’ recommendation on the shares with a target price of 1,500p.
Nomura’s Fraser Ramzan raised his target price to 1,350p, saying there were signs of ‘solid execution on strategy’. But he kept his ‘neutral’ rating, adding that his enthusiasm was tempered as ‘footfall remained soft’.
Analysts at Bank of America Merrill Lynch, meanwhile, raised Burberry shares from ‘neural’ to ‘buy’.
Ocado makes gains, but sceptics remain
Online food delivery company Ocado (OCDO.L) was also making strong gains, up nearly 6% to 89p despite reporting what analysts described as ‘modest’ sales in a Christmas trading update.
Gross sales for the six trading weeks to 6 January 2013 were up 14.2% from 2011 at £91.6 million, the company reported.
Analysts at Panmure Gordon were among those that remained sceptical about the company that mainly delivers Waitrose products. ‘We don’t think that the model has suddenly become a profitable on... We remain sellers, with a target price of 50p,’ they noted.
The Panmure team also dismissed bid rumours for the company. ‘There has been some speculation that Morrison (MRW.L) may attempt to kick-start its online food business by acquiring Ocado. At current prices, this appears unlikely,’ they said.
But Jefferies analysts were more upbeat. ‘Ocado’s Q4 and Christmas updates confirmed an improving trend, even if the group continued to lag growth achieved by peers,’ they said.
ARM 'impressive' but 'expensive'
In the losers’ column, technology firm ARM Holdings (ARM.L) dropped sharply, down 4% to 838p after analysts at both Morgan Stanley and Investec downgraded the shares.
Morgan Stanley, which marked ARM shares down from ‘overweight’ to ‘equal-weight’, summed up a view held by many investors, describing ARM as ‘best in class but priced in.’
‘While we remain very impressed by ARM and its partners’ progress, we believe the current absolute share price is not attractive enough for new money,’ said the Morgan Stanley team.
Investec cited similar valuation grounds for a downgrade, removing their 'buy' rating on ARM and replacing it with a 'hold'.
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- HMV Group PLC (HMV.L)
- Burberry Group PLC (BRBY.L)
- ARM Holdings PLC (ARM.L)
- Ocado Group PLC (OCDO.L)
- WM Morrison Supermarkets P L C (MRW.L)