What Full-Year Results Mean For Burberry Group plc, SSE plc & Marks and Spencer Group plc

Do full-year results strengthen the investment case for Burberry Group plc (LON: BRBY), SSE plc (LON: SSE) and Marks and Spencer Group plc (LON: MKS)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how I’m using a £20k ISA to target £11k+ in income 30 years from now

Is it realistic to put £20k in an ISA now and earn over half that amount every year in passive…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

If I could only keep 5 UK stocks from my portfolio I’d save these

Harvey Jones is running through his portfolio of top UK stocks to see which ones he couldn't bear to do…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

I’m aiming for a million buying unexciting shares!

By investing regularly in long-established, proven and even rather dull businesses, this writer plans to aim for a million. Here's…

Read more »

Investing Articles

3 things to consider before you start investing

Our writer draws on his stock market experience to consider a few vital lessons he would use to start investing…

Read more »

Investing Articles

Will this lesser-known £28bn growth stock be joining the FTSE 100 soon?

As the powers that be plan a reorganisation of Footsie listing rules, this massive under-the-radar growth stock could find its…

Read more »

Investing Articles

Fools wouldn’t touch these 5 FTSE 350 flops with a bargepole – how come I own 3 of them?

Harvey Jones took a chance on three struggling FTSE 350 stocks in the hope that they'd stage a dramatic recovery.…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

How I’m trying to make a million from passive income

Invest as much as possible, regularly, and use the passive income to plough back into more shares. Here's how millionaires…

Read more »

Investing Articles

I’d buy 30,434 shares of this UK dividend stock to target £175 a month in passive income

A top insider has spent over £1m buying this 9%-yielding passive income share over the last year. Roland Head explains…

Read more »