Today I’ll be taking a look at three FTSE 100 firms with results hot off the press: luxury brand Burberry (LSE: BRBY), consumer goods giant Unilever (LSE: ULVR), and British housebuilder Persimmon (LSE: PSN). Are these three blue-chips a buy, sell or hold?
Profit warning
Shares in luxury brand Burberry fell sharply this morning after its second half trading update for the period to 31 March. Total revenue was down 1% to £1.41bn, with retail revenue flat, and licensing revenue down 1%.
Importantly the company pointed to a tough year ahead, with wholesale revenue expected to fall even further, but talked up its efforts to build for future growth. Chief executive Christopher Bailey said: “In an external environment that remains challenging, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans. Brand momentum is strong, digital continued to outperform and innovation in new products is resonating well with our customers.”.
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Is it time to sell and run, or to take advantage of today’s price fall and buy? Burberry shares trade on a forward price-to-earnings ratio of 17.7 for the current year, falling to 16.4 for fiscal 2018. In my opinion the rating is still too high given the uncertain outlook. For me, the shares are a hold at best.
Low-risk, low-reward
Consumer goods giant Unilever’s Q1 trading statement this morning showed a 2% decline in turnover to €12.5bn due to negative currency movements and slowing volume growth. It wasn’t all bad news, with underlying sales and volume up by 4.7% and 2.6%, respectively.
The sales growth was achieved across all four product categories of personal care, foods, homecare and refreshment. Emerging markets were particularly encouraging with an 8.3% rise in sales, in contrast with developed markets that remained broadly flat.
So what about the valuation? The shares aren’t cheap, trading on 22.2 times forecast earnings for this year, falling to 20.9 times for the year ending 31 December 2017. These multiples are on a par with historical levels and with low growth forecast I don’t see too much upside potential in the near term.
Income seekers won’t find the shares too appealing either, with average-looking dividend yields of 3% and 3.2% forecast for the next couple of years. I think the shares are a hold for steady long-term growth with low risk, coupled with moderate dividends, but I don’t see any attractions for new bargain-seeking investors.
Slowing growth
Also falling sharply this morning was Persimmon, despite a positive trading update. The York-based housebuilder reported total forward sales revenue of £2.15bn, 2% higher. The company said it had sold 7,598 new homes into the private sale market for 2016, with an average price of around £220,000, a 5.8% improvement on the year.
Persimmon has enjoyed strong growth in recent years, but analysts expect a slowdown this year and next. Our friends in the City estimate growth of just 3% and 8% for the next two years, suggesting earnings multiples of 11.7 and 11, respectively. Dividend payouts are generous however, with the company expected to pay 108.34p per share for this year, rising to 110.55p next year, meaning prospective yields of 5.2% and 5.4%.
I think there’s room for a little capital growth, but the main attractions are for income-seekers, with strong yields in excess of 5%. The shares are a buy for income seekers, and a hold for those seeking slow long-term capital growth.
