UK shares to buy: why I like the FTSE 100’s Burberry and this British luxury brand owner

Kevin Godbold
·3-min read
Image of person checking their shares portfolio on mobile phone and computer
Image of person checking their shares portfolio on mobile phone and computer

When it comes to searching for UK shares to buy now, I’m keen on British luxury brand owner Burberry (LSE: BRBY). But the FTSE 100 company isn’t the only stock I’d buy that owns a luxury British brand.

Further down the listings resides another company with a British heritage that’s making inroads expanding trading abroad. Read on, and I’ll tell you more.

Why I think Burberry is one of several UK shares to buy

First though, Burberry suffered the usual interruption in trading because of the Covid-19 crisis. Store closures caused earnings to plummet during the lockdowns. And coronavirus measures, such as social distancing, caused costs to rise. But both the stock and the business have been recovering well.

During the crisis, online sales have gone some way to mitigating the worst effects on trade. Now, the easing of lockdowns and the reopening of the firm’s stores are boosting the trading recovery.

Meanwhile, recent updates have been bullish regarding trading in China where Burberry earns around 20% of its revenue. And in the entire Asia Pacific region, the company derives around 40% of its revenue. Indeed, the region is a big growth market for Burberry and success there is one of the reasons I’d be keen to pick up a few Burberry shares now.

City analysts following the firm expect a robust recovery in earnings next year, although profits will still likely be around 75% of their pre-coronavirus level. Nevertheless, when viewed as a long-term investment, I reckon the coronavirus dip is a potentially short-term setback. Meanwhile, with the share price near 1,584p, the forward-looking earnings multiple for the trading year to March 2022 is just above 22. I think that’s fair given the quality of the enterprise.

This could be a decent recovery and growth play

But alongside Burberry, I’d buy shares in British luxury brand owner Mulberry (LSE: MUL). The firm is known for its range of designer handbags and leather goods. And it’s expanded well beyond its UK roots with a store network in China, Hong Kong, Japan, South Korea, North America and mainland Europe, as well as in the UK.

However, it’s fair to say the company’s growth trajectory hasn’t been smooth. Indeed, today’s share price near 152p is a far cry from the heady days in 2012 when the stock changed hands above 2,200p. A record of patchy earnings tells the story of a troubled few years. The company even dipped into a trading loss during 2019.

But I reckon the underlying operational trend is turning. In today’s full-year results report, non-executive chairman Godfrey Davis said the company was “destined” to record a “small” profit in the second half of the financial period until trading was affected by the outbreak of the coronavirus crisis. However, Covid-19 has caused the company to consider reducing its employee numbers by around 25% “across the global business.”

I reckon such a move could help re-set the enterprise for recovery and growth. And I’m encouraged by the directors’ assessment that current trading is ahead of their earlier expectations. Meanwhile, with the share price near 152p, the forward-looking earnings multiple for the current trading year to March 2021 is just above 10. I reckon that looks like decent value.

The post UK shares to buy: why I like the FTSE 100’s Burberry and this British luxury brand owner appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020