The FTSE 100 of the UK’s largest companies hit a record high last week and is up over 15 per cent so far this year. Meanwhile, the FTSE 250 index of the next largest companies has enjoyed a similar bounceback.
Some stars are rebounding faster than others, thanks to turnaround plans, clever deals and an eye on future trends, but valuations suggest they may have further to go.
Here are three worth looking at.
Burberry
Back in favour, and back in the FTSE 100, Burberry is benefiting from a return to luxury spending.
The company has enjoyed a recent history as chequered as its most iconic fabric, but chief executive Joshua Schulman is beginning to reap the rewards of a turnaround programme called Burberry Forward, which is putting some bounce into the shares.
Burberry Forward is aimed at restoring the company’s brand identity after a move away from its traditional strengths – including a foray into non-standard Burberry colours and a focus on expensive handbags – led to shares collapsing and the departure of former boss Jonathan Akeroyd.
Star turnaround: Actress Olivia Colman in a Burberry advert
Schulman hopes to rebuild the company’s reputation with the help of British actress Olivia Colman, who stars in Burberry-made short films where she works in a chip shop, shows tourists around Greenwich and watches a cricket match. It’s always Burberry weather, the campaign suggests, focusing firmly on favourites that repel the rain and cold – umbrellas, scarves and coats.
The fashion press is pleased with this back-to-basics approach, with Harper’s Bazaar picking a Burberry piece as its ‘best heritage trench coat’.
The most recent figures, from July, show that Burberry is still struggling with sales but that things are looking brighter.
The return to the FTSE 100 last month – after being relegated a year ago as its share price dropped – will give investors further confidence, while elsewhere in the luxury sector, strong figures from LVMH, which owns Givenchy and Louis Vuitton, give credence to the idea that consumers still want a bit of luxury in their lives.
LVMH said sales were growing again in China, something that Burberry – which has China as a key market – will find encouraging.
Burberry’s shares have recovered along with the turnaround story, up 27 per cent this year so far and 76 per cent in the past 12 months.
But at £12.87 they are still almost half the price of £25 that they reached in 2023.
Fund manager James Bowmaker, who runs VT Tyndall Unconstrained UK Income, is a fan. He believes the shares will have much further to run if the current marketing campaign is as successful as many hope.
‘The combination of a reinvigorated core offering and not having to discount poorly received expensive products is showing early signs of success,’ he says. Midas agrees and investors could do worse than pop a few shares in their trench coat pockets.
Traded on: Main market Ticker: BRBY Contact: burberryplc.com
Brooks Macdonald
Wealth manager Brooks Macdonald has enjoyed a strong recovery since it moved from the smaller Alternative Investment Market (Aim) to the FTSE index in March.
Its shares have risen 23 per cent in the past six months, but still look cheaper than rivals considering the profits it produces.
The wealth manager has refocused, selling its international arm to prioritise the UK market.
Despite a drop in mergers and acquisitions this year, chief executive Andrea Montague hopes they will continue to be the engine that returns the company to growth. Outflows have begun to fall, with the second half of the year in particular showing a slowdown in people selling up, and funds under management increased over 17 per cent to £19 billion last year.
Boost: Brooks Macdonald has enjoyed a strong recovery since it moved from the Aim to the FTSE
But why could Brooks bounce even higher?
Firstly, its ‘reignite growth strategy’ involves investing in tech and AI, cutting costs, focusing on efficiency and rebranding its wealth arm as it takes in new acquisitions.
Secondly, it is targeting the need for advice and management of pensions as more people with flexible pensions approach retirement.
The number of income drawdown plans – pensions that are being managed so that money is taken from them when needed in retirement – is forecast to increase by 20 per cent over the next five years.
With that in mind, Brooks has launched three retirement strategies – bespoke, tailored and modelled – which it hopes will cater to the different types of people who need to manage their pension money to make it last through retirement.
While shares have rebounded, many reckon that they still have a way to go. In terms of valuation, the share price is eight times the value of earnings, compared with the 12-15 times of bigger rivals.
So it could be attractive to a private equity buy-up. Buy.
Traded on: Main market Ticker: BRK Contact: brooksmacdonald.com/investor-relations
Serica Energy
Domestically focused Serica Energy was set to move to the FTSE from Aim next quarter, but it delayed its move unexpectedly on Wednesday.
That means you still have time to get in now before this rebounding company makes it on to the main market, where there is likely to be more investor interest.
The company’s move has been snarled up in red tape, as it has made some acquisitions lately that mean it must prepare new reports to be included in its prospectus.
It did add, however, that it will move ‘at the earliest opportunity’ as soon as it has got full-year accounts out.
Mergers and acquisitions: Serica’s shares have had a good run, up 35 per cent year-to-date
Serica’s shares have had a good run, up 35 per cent year-to-date thanks to those mergers and acquisitions that are delaying the move.
Companies such as Serica struggle with a windfall tax that has made them uncompetitive globally. Many believe that the tax will be reformed in the November Budget, when the Government has said it will be reviewed and updated.
If this happens, Serica will bounce back even more.
If you buy in now, you’re taking a bet on Rachel Reeves realising the policy is resulting in lower tax takes from the North Sea and changing tack.
A buy for the brave.
Traded on: Aim Ticker: SQZ Contact: serica-energy.com/investors
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