Insider: half-dozen directors bet on FTSE 100 stock’s recovery

Threatened with demotion from the premier index after a spectacular share price crash, those on the inside have put their own money on a bounce back. City writer Graeme Evans also spots activity at a well-known small-cap.

22nd July 2024 07:56

Graeme Evans from interactive investor

Six Burberry Group (LSE:BRBY) directors led by chair Gerry Murphy have backed turnaround prospects under a new chief executive by spending a total of £275,000 on the ailing FTSE 100 shares.

American Joshua Schulman took the helm on Wednesday, replacing Jonathan Akeroyd two days after the company’s latest profit warning and suspension of the 2025 dividend.

Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

The insider board purchases happened last week at prices between 720p and 747p, only for Burberry to close on Friday even lower at 697.6p. That’s down 21% on where shares started the week and leave the luxury goods group on course to exit the FTSE 100 in September’s reshuffle based on a valuation well below £3 billion.

Summing up trading conditions following last Monday’s update, Murphy told the City: “It's been a tougher market where customers are more cautious, more conservative, not just about price but on style.” The restraint of China and North America customers has been felt in Europe, too, given that the market is tourism-driven.

If the trends shown in the first quarter continue, Burberry expects an operating loss for the first half of 2024/25. Shareholders will still get the £151 million payment of 42.7p a share on 2 August, but 2025 dividends are on hold in order to preserve balance sheet strength.

Despite the disappointing trends and change of leadership, Murphy told analysts not to assume a significant change of overall direction. He admits the company may have moved “a bit too far, too fast” in a market that was weakening and where customers basically favour familiarity.

He remains confident that cost savings will start to deliver an improvement in the second half and strengthen Burberry’s competitive position. The new boss was previously chief executive of American fashion brands Michael Kors and Coach.

Murphy added: “Josh has been very engaged in thinking about Burberry for a number of years and has a very clear view of where he wants to take the brand, and it's very consistent with what Jonathan was trying to do.”

Former Kingfisher (LSE:KGF) boss Murphy, who has led the board since 2018, made his £145,000 purchase of shares on the day he addressed shareholders at the company’s London AGM.

Finance director Kate Ferry spent £59,500 on the same day, alongside smaller purchases by three non-executive directors. A sixth director bought shares on Thursday.

UBS last week slashed its price target to 490p and said Burberry was in uncharted territory of navigating a restructuring while still pursuing efforts to position itself as a "true luxury" brand.

The bank added: “We expect its earnings margin to recover to about 10% by 2029, however, this is not a given amid no clear strategy and now a much weaker balance sheet.”

Downgrades by other City banks were less severe, with Goldman Sachs cutting to 910p and JPMorgan and Jefferies to 800p.

Deutsche Bank is also at 800p, believing that Burberry has made a sensible strategic choice to replace the CEO but in maintaining Daniel Lee as creative designer.

The bank added: “The early stylistic changes are being pared back, more accessible price points are being introduced and the focus is being returned to the areas such as trench coats and scarves where Burberry has brand authority.

“Investors were becoming increasingly frustrated with the performance at Burberry and looking for a change in strategic direction. We expect that this will start as a gentle turn but will evolve into a larger shift over time.”

Back on track?

The boss of Hornby (LSE:HRN) has made his first purchase of the AIM-listed company’s shares, a move that backs up his view that the toy and hobby firm has “enormous potential”.

The £10,000 investment by Olly Raeburn took place on Thursday, a week after the company reported annual sales growth for a fifth year in a row but also a £7.1 million operating loss.

Raeburn, who took on the role in January 2023, said Hornby was a long way from where it wanted to be but that its turnaround required investment and time.

He pointed out Hornby started 2023/24 with challenging headwinds relating to debt, inventory and operational inefficiencies, none of which could be addressed with quick fixes.

Raeburn added: “A year into the process, we have covered a huge amount of ground and made some very promising progress in many areas.”

He admitted figures for net debt and inventory were still high at £14.3 million and £21 million respectively, but showed improvement on the first half performance.

A partnership with Frasers Group (LSE:FRAS), through which the FTSE 100 group has built a 9.1% stake, has given Hornby brands a presence in Game stores. It is also able to call on the support of Mike Ashley, the founder and major shareholder of Frasers, through a consultancy agreement.

Raeburn said: “The change in trajectory in the second half of the year gives us early indications that the investments in people, processes and product are starting to make a positive impact.”

He added: “The past 12 months have been both challenging and rewarding, but I remain resolute that this is a business with enormous potential.”

Raeburn bought his shares at 25p, compared with January’s 16p and 38p seen after two investments by Frasers in February and March. The stock closed last week at 24.5p

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox