Today, we have full-year results from Burberry Group (LSE: BRBY), SSE (LSE: SSE) and Marks & Spencer Group (LSE: MKS).
Unsettled trading weather ahead
Fashion supplier Burberry is penetrating global markets with its distinctive check brand. Around 38% of the firm’s revenue comes from the Asia Pacific region, 35% from Europe, the Middle East, India and Africa, and 27% from the Americas.
The firm reckons an intense focus on core heritage British-made trench coats and cashmere scarves drove the year’s growth, alongside an investment in digital, which outperformed across all regions. However, looking ahead, the chief executive says Burberry is seeing increased uncertainty in some markets, which seems to fire a warning shot across forward growth expectations.
Today’s results show underlying revenue up 11% to £2.5 billion after adjusting for the effects of currency fluctuations. Underlying adjusted profit before tax is up 7% to £456m, and the firm is raising the dividend by 10% to 35.2p.
Percentage earnings growth in the 20s and 30s, like Burberry achieved in the early years of this decade appears to be a thing of the past. Yet Burberry insists that ongoing investment drove continued brand and business momentum during last year with underlying retail sales up 14% and double-digit growth in some regions.
However, the firm describes the trading environment as ‘challenging’, and City analysts forecast earnings growth of just 8% for year to March 2016 and 11% for year to March 2017. Such growth predictions make the current valuation ‘challenging’ as well. The forward price-to-earnings ratios stand at 20 for 2016 and 18 for 2017 at a 1717p share price.
Asset rebalancing
Along with its full-year results, SSE announces plans to close all remaining capacity at its coal-fired power station at Ferrybridge, Yorkshire by 31 March 2016. The firm will then enter all the remaining capacity at Fiddlers Ferry, Lancashire, into the auction for electricity generation capacity at the end of 2015, for delivery in 2019/20. Although Fiddlers Ferry also burns coal, it is capable of co-firing biomass.
Overall, that manoeuvre seems likely to produce a net gain of 981 Mega Watts of generating capacity. SSE aims to achieve a long-standing objective of transitioning its generation assets from a portfolio weighted towards gas and coal towards a portfolio more weighted towards gas and renewable sources of energy.
Whether a long-term move away from coal will improve the firm’s financial figures remains to be seen. Today’s results show adjusted earnings per share up by just 0.6% to 124.1p, adjusted profit before tax up 0.9% to £1,564.7 million, investment and capital expenditure down by 6.8% to £1,475.3 million. adjusted net debt and hybrid capital down by £74.7 million to £7,568 million. Meanwhile, the firm increased the full-year dividend by 2% to 88.4 pence per share, with the payout covered 1.4 times by adjusted earnings per share.
SSE’s chairman reckons the firm is on a very sound footing to maintain its position as one of the most reliable dividend-paying stocks in the FTSE 100. However, the capital-intensive nature of the business, high debt and fluctuating regulatory landscape make me inclined to look for better dividend-growth prospects in other sectors.
Coming back
As an investment, Marks & Spencer looked moribund for a number of years, but just lately, the firm has been coming back. Today’s report shows sales up 0.4% to £10.3 billion and underlying profit before tax up 6.1% to £661.2 million.
The company reckons its food business outperformed in a very competitive market, thanks to what it describes as specialist positioning differentiating the offering from the competition. Indeed, we could be seeing emerging growth as 62 new Simply Food stores opened during the period, with performance ahead of the firm’s expectations. Such food-only focused stores could transform future results and mix up the supermarket and food-supplier sector even more.
However, food’s not the only area of the firm’s business doing well. The general merchandise gross margin is up 190 basis points due, the company says, to significant sourcing gains and slightly lower discounting. Yet general merchandise sales performance remains challenging the directors confess, and full-year performance did not meet their expectations, although the firm did see like-for-like sales growth in the final quarter.
Macro-economic issues affected the company’s international business, which represents around 10% of revenues, and operating profit abroad was down 24.8% to £92 million. Overall, M&S saw strong cash generation with free cash flow before payment of the dividend of £524.2 million, up £96.3 million. That happy situation leads to a final dividend up 7.4% to 11.6p making the full-year dividend up 5.9% at 18p. The firm also announced a share buyback programme of £150 million 2015/16.
The chief executive reckons M&S is becoming a stronger, more agile business with the right infrastructure, capabilities and talent in place to drive strategic priorities. It’s hard to disagree, but such expectations seem fully accounted in the current valuation.
