The coronavirus has taken its toll on Burberry shares, which are down 13% since the outbreak, but this may offer an opportunity to bag a bargain, according to one of the UK’s top stock pickers.
Burberry, famed for its check design, derived 40% of its revenues last year from Asia last year with the emerging middle classes of China, the source of the pandemic, accounting for a large chunk of those sales.
But this is a short-term ripple, according to Nick Train, co-founder and portfolio manager of Lindsell Train.
“Some investors worry that Burberry’s business is volatile… but it is important to take a longer-term perspective,” he said.
The investor is well-known in the City and among the many investors in Lindsell Train’s funds for his buy-and-hold philosophy, which involves keeping stakes in high-quality companies for a long time regardless of performance.
Lindsell Train’s funds are the second-largest shareholder in Burberry, with a 5.38% stake.
Burberry’s brand strength
Train pointed out the FTSE 100-listed company has risen more than tenfold since floating in 2002 and was voted one of the most valuable brands in the world in a survey by Interbrand.
“We think its best years are still ahead and the shares become a buy on periodic scares about China,” Train said.
The trench coat designer has been pinning its growth on Asia’s newly wealthy enamoured with its ‘style anglais’.
But the appeal of high fashion extends to other European luxury players.
In a wider note ahead of the London Fashion Week later this month, the Association of Investment Companies (AIC) assessed the prospects of the big fashion houses.
Making sustainability fashionable
The king of luxury is LVMH, owner of Louis Vuitton, Christian Dior and Givenchy, boasting a €200bn market cap.
And there appears to be no stopping to the French behemoth, which recently completed the largest-ever deal in the sector as it acquired US jeweller Tiffany & Co for US$16.2bn.
But LVMH’s competitor Kering seems to be addressing the issue of sustainability best, according to Catharine Flood, corporate strategy director for Scottish Mortgage, as the owner of Gucci and Yves Saint Laurent recently swapped its classic natural luxury materials for new synthetic ones.
“While many companies try to identify the threats to their existing businesses, far fewer have a culture which enables them to respond to those challenges,” Flood says.
“The ability to adapt is crucial to ensuring a company’s longevity and value creation.”
In December, Kering was rumoured to be in talks to Moncler, the upmarket puffer jacket maker, but no announcements have come out yet.
Mass market clothiers such as Next PLC (LON:NXT) and Spain’s Inditex, the owner of fast-fashion brand Zara, both have long-term potential, says Train, and both have avoided the coronavirus woes because their focus is Europe rather than Asia.
However, neither has the long-term allure of Burberry, according to the stock picker.
“None of them can claim the same ‘style anglais’ – because Burberry is the only one that can represent that type of Britishness.
“It is a style beloved of Asians – meaning that Burberry offers a wonderful participation in the growing wealth of that region over decades to come.”