Do trading updates make Burberry Group plc and ASOS plc the perfect shares to soothe investors’ post-referendum nerves?

Could fashion giants Burberry Group plc (LON:BRBY) and ASOS plc (LON:ASC) plc make ideal Brexit investments?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With political uncertainty dictating how the markets have moved over the past few weeks, it feels a little redundant to scrutinise trading updates from UK companies.

As every Fool knows however, investing is about buying slices of great businesses and holding them for years, not obsessing over short-term share price moves or (whisper it) trying to time the market. So, let’s look at the latest figures from two of the UK’s most successful fashion retailers: Burberry (LSE: BRBY) and ASOS (LSE: ASC).

Flat sales

On Monday, Burberry said CEO Christopher Bailey would next year become president with his former position being filled by Marco Gobbetti. While coming on the same day that share prices of most FTSE 100 shares rocketed upwards, a leap of over 4% won’t have escaped the former’s notice. 

Then again, Mr Bailey must have seen this coming. Before Monday, Burberry’s shares had slumped by 22% in the past 12 months suggesting that, in addition to concerns over slowing global growth, investors were increasingly worried that his dual role of CEO and Chief Creative Officer wasn’t benefitting the company.

Today’s trading update may do little to assuage these concerns. Sales revenues were flat at £423m. On a like-for-like basis, they actually fell by 3% due to  a “challenging external environment“.

Having said this, Burberry’s shares are up 3.7% in early trading, suggesting investors were expecting the news to be a lot worse. They now trade on a not-unreasonable rolling price-to-earnings (P/E) ratio of 17 and offer a well-covered yield of just over 3%.

Reassuringly expensive?

At the opposite end of the market, online giant ASOS’s trading update yesterday showed UK sales up 28% and international scales up 31% in the four months to 30 June. The company now expects full year sales growth “at the upper end of the 20-25% range“.

Now for the bad news. ASOS’s growth star status means it remains on an astronomical valuation (a rolling P/E of almost 60, according to Stockopedia). The shares have also had a decent run of late, given that they went as low as 2,595p back in February (now 4,483p). Finally, although the sales growth looks impressive, a quick scan of the company’s profit levels shows that these have barely budged in the last couple of years as a result of increased competition and the need to cut prices. Is the ASOS bubble about to burst?

Global reach

Trying to compare ASOS with Burberry isn’t entirely rational since the former caters to trend-and-price-focused 20-somethings while the latter offers luxury with price tags few 20-somethings can afford. Nevertheless, one thing both companies are likely to share is an ability to withstand the fallout from the UK’s vote to leave the EU.

The sharp rise in international sales growth should protect ASOS from too much Brexit pain. Indeed, international sales now account for 59% of its business. Burberry is also a likely beneficiary as it ships a large proportion of its products abroad after being manufactured in the UK. A weaker pound is therefore good news for the £5.4bn cap.

That said, a slowdown in global growth could hit both share prices but particularly Burberry’s as consumers cut back on luxury items. While both companies have performed extremely well over the last few years, risk-averse investors may wish to look for less cyclical stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Dividend Shares

Here’s my 2024/25 dividend forecast for National Grid shares after their recent 17% plunge

National Grid shares could still be a good choice for income, even after the recent seven-for-24 rights issue, says Edward…

Read more »

photo of Union Jack flags bunting in local street party
Top Stocks

5 quality UK stocks to consider buying for the new ‘British ISA’

In theory, a British ISA would allow investors an additional £5k (on top of the standard £20k allowance) so long…

Read more »

A mixed ethnicity couple shopping for food in a supermarket
Investing Articles

4.24% yield and a P/E of just 12.1! Tesco shares look like a no-brainer buy for me

Harvey Jones thinks Tesco shares look good value after today's solid first-quarter results. He's now saving up to buy the…

Read more »

Market Movers

Why the Raspberry Pi share price is on everyone’s minds right now

Jon Smith reviews the 14% jump in the Raspberry Pi share price today as part of the successful IPO of…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 UK stocks that could do well out of the general election

Jon Smith runs the rule over two UK stocks that may benefit from higher spending on healthcare, consumer staples and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Could this undervalued growth stock be the next big success story in US tech?

Shares of this US technology giant have collapsed almost 50% in 2024, but is the growth stock now an incredibly…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

After soaring 35% this year, is there still value in Barclays shares? Here’s what the charts say!

Barclays has been on a tear in 2024. But where does that leave investors considering buying some shares now? This…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

Nvidia stock has surged 3,450%. This UK investment trust owns loads!

Nvidia's recent amazing price surge has helped boost the value of this investment trust too as the chipmaker is its…

Read more »