Mindful Money’s Monday Share tips

14th October 2013


Among others, this week sees luxury fashion retailer Burberry, media giant BSkyB and drinks group Diageo update the market. We look at whether the brokers think they are worthy of your investment writes Philip Scott.

Burberry delivers its half year trading update on Tuesday and despite its shares up 42% over the past year and by 23% in the last six months, recent comments from chief executive, Angela Ahrendts, in a newspaper interview appeared to inject a degree of caution.

She noted that “this Chinese slowdown is maybe not a temporary accident but a new normal”. Looking ahead to the group’s report, Keith Bowman equity analyst Hargreaves Lansdown Stockbrokers says:  “The Chinese economy is currently expected by economists to generate its slowest pace of expansion in 23 years. Analysts currently forecast a near 2% rise in first half pre-tax profit to £176.8m, with revenue climbing by nearly 12% to £987.6m. Prior to the release, and with uncertainty regarding China persisting, analyst opinion currently points towards a ‘hold’, albeit a strong one.”

Sheridan Admans, investment research manager at The Share Centre generally concurs, adding: “The shares have staged a nice recovery since the beginning of the year but Angela Ahrendts’ recent warning of slowing Chinese demand could possibly be reflected in the company’s results next week. Investors will therefore again focus on the group’s expansion plan in the region. We currently list Burberry as a ‘hold’.”

On Tuesday, Rio Tinto delivers a production update and as per ususal with natural resources firms these days, the situation in China will be of primary interest. “Investors could expect record levels of iron ore production, a continuation from the previous quarter, and with commodity prices holding up relatively well they will hope to see a positive reflection in the sales numbers. We currently list Rio Tinto as a ‘buy’,” says Admans.

Diageo, the international spirits maker and brewer, which counts Baileys, Smirnoff and Johnnie Walker among its brands reports its first quarter sales update on Thursday. The shares are up by 10% in the past year but down 2% over six months. For his part, Admans rates it a ‘buy’. Some slowing in overall group organic sales compared to the second half of the last financial year is broadly expected. The group’s exposure to Emerging Markets – 42% of net sales – is likely to drag notes Bowman. He says: “For its Latin American and Caribbean region, challenges in Brazil may again offset growth elsewhere, whilst for its Asia Pacific region, difficulties in the likes of India and Korea are likely to impact. Furthermore, the group’s Western European markets are expected to have remained challenged. Nonetheless, North America is likely to have remained broadly solid, whilst its newly formed Africa, Eastern Europe and Turkey region should again report progress. In all and given its exposure to expected long term Emerging Market growth, analyst opinion continues to denote a ‘strong buy’.”

BSkyB also updates investor on Thursday, with its Q1 results. Its shares are up 17% in the past year and by 5% in the last three months. The wider broker sentiment according to share data website Digital Look is pointing to a ‘hold’.

Investors are likely to be concentrating on the average revenue per user figures, along with number of new customers. Admans says: “There has been growing concerns over competition from the likes of BT so updates on how new initiatives by the group are going will also be worth noting. We currently list BSkyB as a ‘buy’.”

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