Burberry (Q3 update 17 January)
Led by its new CEO, Marco Gobetti, Burberry is going through a period of change, as it looks to move toward a more ‘super luxury brand’ position. Former CEO, Christopher Bailey, a man that drove Burberry forward in recent years, will leave at the end of 2018. Combined with this, the firm promises to change its customer experience, its products and its communication. Thus, this upcoming statement could provide some further information on how this transformation is progressing. At 21.5 times forward earnings, the stock is expensive relative to its sector, which trades at 16.3 times forward earnings.
Burberry’s 2016 climb broadly flatlined into 2017, despite a rally above £20.00 in November. The shares have traded in a tight range since then, bounded by £18.40 on the upside and £17.11 on the downside. A break higher targets £19.29 and then £20.23, or for a break lower we would look for a move towards £15.42.
Whitbread (Q3 update 18 January)
Whitbread will provide another view of consumer spending when it updates the market this week. Its various brands provide a useful overview of the UK services sector, with the group having done well out of the UK’s love of coffee and the need for cheap but comfortable hotels. Earnings per share (EPS) have grown by almost 90% in the past five years, and good economies of scale continue to bolster margins. The firm continues to resist the siren calls to break up its various businesses into their component parts. At 14.3 times forward earnings the stock is in line with its average valuation over the past two years, and remains relatively cheap.
Whitbread has been rangebound since mid-2016, failing to participate in the broad market rally. The shares have twice faltered recently below the October high of £40.77. Further declines below £38.00 will target the £35.00 low from November. Above £40.77, the £43.33 level comes into play.