Wise (FY22 earnings)

Wise (LSE: WISE) is a fintech company that provides a money transfer service. It allows customers to send money abroad and get paid in other currencies. Wise is expected to unveil its FY22 earnings results for the year ending March 2022 on Tuesday 28 June.

Although there’s no previous record to compare with in terms of earnings per share (EPS), the earnings preview indicates that revenue is expected to grow by 32%. This is seen as generally positive as Wise continues to take market share from the likes of PayPal and Western Union. Having declined over 60% since its initial public offering, a better-than-expected number on its top and bottom lines could see the Wise share price recover from its bottom.

Moonpig (FY 22 earnings)

Moonpig (LSE: MOON) is an internet-based business. The company makes its money mainly from selling personalised greeting cards, flowers, and gifts. The FTSE 250 firm is expected to release its FY22 earnings results for the year ending April 2022 on Wednesday 29 June.

Moonpig is expecting to show a slight decline in revenue for the most recent year. This is due to the slowdown in sales after the pandemic. Nonetheless, the online business is still expecting its revenue to come in above pre-pandemic levels, with its bottom line also showing an improvement.

Mulberry (FY 22 earnings)

Mulberry (LSE: MUL) is a British fashion company. It is best known for its luxury leather goods, particularly women’s handbags. The small-cap company is expected to post its FY22 earnings results for the year ending April 2022 on Wednesday 29 June.

The earnings preview points towards a slight growth in revenue despite a slow down in retail sales lately. This is due to its status as a luxury brand. Due to a lack of liquidity in the stock, its share price has largely stayed unmoved this year. Consequently, there’s a lack of coverage on the stock. Nonetheless, higher revenue with a better EPS could have investors jumping for joy, sending the stock higher.

Is something in the works? In my experience I have seen that when a share’s price shows sharp movement without any apparent reason, sooner rather than later important information surfaces that was probably just speculation earlier. It is possible that something like that has happened in the case of Mulberry.

As an investor, I am not one for giving in to speculation, however. I like solid stocks whose performance and prospects can be verified. And that is the lens through which I would like to assess this stock too. 

Mulberry’s performance improves

First, let me consider its share price performance. In the past year, Mulberry has not disappointed. Quite the contrary. Its share price more than doubled between June 2020 and May 2021. It has declined since, possibly as investors sold off its shares at a profit. However, in relative terms, the share price is still high compared to last year. Higher by a whole 75% actually. 

This is a pretty good performance. And thankfully, it is not all inexplicable. A couple of months ago, the company disclosed that it expects a small pre-tax profit for the year ending March 27 2021. Clearly, this means that the company’s performance picked up significantly in the second-half of the year. During the first half, it had reported a pre-tax loss of £1.9m. 

The future looks good too

It also said that this is because of “continued strong growth” in its Asian markets, a pick-up in online sales and fewer discounted sales. These factors make me optimistic about Mulberry’s future, as does the fact that Asia-Pacific accounts for around 40% of its revenues. China and South Korea are its promising markets in this region. China is a big market and its growth has picked up substantially in the past year, which bodes well for demand in the future. 

Also, a successful pivot towards online sales will be key for retailers going forward. And Mulberry has already shown some success in that. More than half of its total sales were digital in the first half of the 2020-21 financial year. I am sure this is partly because of the lockdowns, because in the year before, the number was much smaller. But I also believe that it is likely that some sales have permanently moved online. It is to the brand’s credit that it has been able to drive up online sales significantly. 

But there are still questions

Yet I am uncomfortable with the constant fluctuations in its share price (it is down over 3% so far today, for instance). Also, its financial performance has been underwhelming in the past few years. Will it be able to turn around sustainably? I do not know.  Mulberry is on my watch list, but I would not buy it yet. 

Meanwhile, luxury goods retailer Mulberry Group (LSE: MUL) saw its stock climb 20%. Shares in the fashion firm have risen by more than 50% over the last year.

What’s happened — and why are shareholders seeing these big moves today?

Travis Perkins share price falls on Wickes split

Shares in FTSE 250 builders’ merchant Travis Perkins are falling today, but this isn’t due to any bad news from the company. What’s happened is that the Wickes business, owned by Travis Perkins, has now been spun out into a new company.

Travis Perkins’ shareholders will shortly have shares in Wickes credited to their share accounts. Wickes shares will trade on the London market under the symbol WIX.

Today’s share price fall reflects the loss of the value of the Wickes business. But Travis Perkins shares could rise again in the next few days, as the firm plans to carry out a share consolidation.

This means Travis Perkins’ existing shares will be replaced with a reduced number of new shares. The number will be calculated to try and “maintain broad comparability” in Travis Perkins’ share price before and after the demerger.

All of this will happen automatically — existing shareholders will see the TPK shares in their accounts replaced with new shares. The overall effect should be that the combined Travis Perkins and Wickes shares will be roughly equal to the value of Travis Perkins shares before the split.

Of course, the two companies will trade independently now, and their values may move in different directions, over time. Shareholders who don’t want to own shares in both businesses can choose to sell either Travis Perkins or Wickes.

Why split?

The reason given for the split is Travis Perkins is focused on larger trade customers, whereas Wickes is focused on DIY, home improvement and local trades — the “do it for me” market. Travis Perkins’ management believes both companies will be able to perform better independently.

Even before today’s split, both companies were said to be trading well. On 15 April, Travis Perkins issued a first-quarter trading update reporting “an encouraging start to the year.” Management said first-quarter sales at Travis Perkins and Wickes were significantly ahead of the same period last year.

Mulberry share price rockets 20%

Luxury handbag group Mulberry has been through a tough time in recent years. Mulberry’s pre-tax profit has fallen from a high of £36m in 2012 to a loss of £48m in 2020. This slump wasn’t just due to the pandemic — the group reported a £5m loss in 2019.

Finally, shareholders have had some good news. The company says that sales during the year to 31 March have been better than expected. This is due to stronger online sales and reduced discounting.

Mulberry had been expected to report a loss for the year just ended, but the company now expects to report “a small underlying profit before tax” for 2020/21.

Mulberry’s share price remains more than 85% below the highs of over 2,100p seen in 2012. But the company’s performance does seem to be improving. More details are expected in July, when Mulberry will publish its 2020/21 results.

Further down the listings resides another company with a British heritage that’s making inroads expanding trading abroad. Read on, and I’ll tell you more.

Why I think Burberry is one of several UK shares to buy

First though, Burberry suffered the usual interruption in trading because of the Covid-19 crisis. Store closures caused earnings to plummet during the lockdowns. And coronavirus measures, such as social distancing, caused costs to rise. But both the stock and the business have been recovering well.

During the crisis, online sales have gone some way to mitigating the worst effects on trade. Now, the easing of lockdowns and the reopening of the firm’s stores are boosting the trading recovery.

Meanwhile, recent updates have been bullish regarding trading in China where Burberry earns around 20% of its revenue. And in the entire Asia Pacific region, the company derives around 40% of its revenue. Indeed, the region is a big growth market for Burberry and success there is one of the reasons I’d be keen to pick up a few Burberry shares now.

City analysts following the firm expect a robust recovery in earnings next year, although profits will still likely be around 75% of their pre-coronavirus level. Nevertheless, when viewed as a long-term investment, I reckon the coronavirus dip is a potentially short-term setback. Meanwhile, with the share price near 1,584p, the forward-looking earnings multiple for the trading year to March 2022 is just above 22. I think that’s fair given the quality of the enterprise.

This could be a decent recovery and growth play

But alongside Burberry, I’d buy shares in British luxury brand owner Mulberry (LSE: MUL). The firm is known for its range of designer handbags and leather goods. And it’s expanded well beyond its UK roots with a store network in China, Hong Kong, Japan, South Korea, North America and mainland Europe, as well as in the UK.

However, it’s fair to say the company’s growth trajectory hasn’t been smooth. Indeed, today’s share price near 152p is a far cry from the heady days in 2012 when the stock changed hands above 2,200p. A record of patchy earnings tells the story of a troubled few years. The company even dipped into a trading loss during 2019.

But I reckon the underlying operational trend is turning. In today’s full-year results report, non-executive chairman Godfrey Davis said the company was “destined” to record a “small” profit in the second half of the financial period until trading was affected by the outbreak of the coronavirus crisis. However, Covid-19 has caused the company to consider reducing its employee numbers by around 25% “across the global business.”

I reckon such a  move could help re-set the enterprise for recovery and growth. And I’m encouraged by the directors’ assessment that current trading is ahead of their earlier expectations. Meanwhile, with the share price near 152p, the forward-looking earnings multiple for the current trading year to March 2021 is just above 10. I reckon that looks like decent value. 

Today, I’ll take a look at the scale of the damage faced by this small-cap growth stock, and explain why I’d prefer to put my cash into a larger, better-established rival.

£3m hit could get bigger

When House of Fraser went into administration, it gave Sports Direct founder Mike Ashley the opportunity to buy the chain without being required to pay almost £1bn owed to creditors. That may prove to be good news for the department store, but means suppliers will have to take a hit.

Mulberry is one such supplier, with concessions in 21 House of Fraser stores. The company said today that it expected to report a total loss of £3bn as a result of House of Fraser going into administration.

Given that the luxury handbag firm only reported a pre-tax profit of £6.9m last year, that’s a big hit. But things could get worse. In Monday’s statement, Mulberry warned that UK trading has been “challenging” since June. If it doesn’t improve during the remainder of the year, management expect profits to be “materially” lower. This usually means at least 10%.

Catch this falling knife?

Mulberry shares have now fallen by more than 50% this year. It’s tempting to view this as a bargain buying opportunity, but I’m not convinced. Although the balance sheet remains strong, with net cash of £25m, the shares don’t look cheap to me.

If we ignore the £3m loss from House of Fraser as a genuine one-off, then I estimate the shares still trade on about 40 times forecast earnings for 2018. Operating profit margins are still low, at about 4%. Without clear evidence of strong earnings growth, this business seems too expensive to me.

Here’s what I’d buy instead

Luxury goods producers can be a profitable investment. My favoured choice in this sector is Burberry Group (LSE: BRBY).

This 162 year-old fashion house has the same attractive growth profile in Asian markets as Mulberry. But unlike its newer rival, Burberry benefits from much greater scale and heritage. In my view, these factors provide good protection for investors wanting a lower-risk buy.

Like-for-like sales growth rose by 3% during the first quarter, which may seem modest. But last year’s figures showed decent progress, with adjusted earnings up by 10%, excluding currency effects.

A cash machine

Burberry’s profitability also improved last year. Operating profit margin rose from 14.2% to 15%, while return on capital employed climbed from 21.3% to 24.6%.

High returns of this kind usually result in strong free cash flow, and that’s true here. Burberry’s net cash balance rose by £83m to £892m last year. That’s equivalent to around 10% of its market cap. This provides strong support for the group’s dividend. It’s also allowed chief executive Marco Gobbetti to allocate another £150m to share buybacks.

Shares in this luxury goods firm currently trade on about 28 times forecast earnings, with a prospective yield of 1.9%. That may not seem cheap, but I believe the firm’s valuable brand and high profit margins make it a fair price to pay. I’d be happy to buy these shares for a long-term, buy-and-hold portfolio.

Mulberry bushed

Today’s report showed reported profit before tax falling from £7.5m in 2017 to just £6.9m, although largely due to start-up costs in Asia. Profit before tax from existing business actually rose 36% to £11.3m, but that was before deducting start-up costs of £2m and net operating expenses of £2.4m.

There was good news in there, with gross margins increasing by 185 basis points to 63.5%, revenue up 1% to £169.7m and retail sales up 3%. The UK was broadly flat but international sales rose 20%. Digital revenues rose 14% and now make up 17% of group revenue (against 15% in 2017). The group’s cash balance stands at £25.1m, up from £21.1m. That is all to the good.

Round and round

CEO Thierry Andretta reported significant progress on its international strategy, creating new Mulberry subsidiaries in China, Hong Kong, Taiwan and Japan, and announcing today a new majority owned venture in South Korea. “Following another period of cash generation, our balance sheet is strong.  Although the UK market remains challenging, we will continue to invest in our strategy to develop Mulberry into a global luxury brand to deliver increased shareholder value.”

So can Mulberry finally show some swagger? I looked at the stock one year ago and said it still has a long way to go. One year on the journey remains market rocky. However, I am encouraged by increased international sales, greater penetration in Asia, and its omnichannel strategy, which is the only way for retailers to survive these days. However, the £465m stock still trades at a whopping 77 times earnings and the dividend yield is low at just 0.65%.

Next Port of call

I are more tempted by another consumer small stock with an outsize international presence, ceramics and cookware firm Portmeirion Group (LSE: PMP), whose brands include Royal Worcester, Spode and Wax Lyrical. My Foolish colleague Paul Summers is also an admirer, noting that although these brands are not big sellers in the UK, they are much more popular in North America.

Big in the States sounds good to me, especially given the strong dollar and weak pound. The stock is up 40% in the last year to 1,280p, and up 450% measured over 10 years. It is a tad expensive as a result, trading at a forecast valuation of 17.6 times earnings, but at least it offers a yield of 2.8%, covered twice.

Warming up

Earnings per share growth forecasts look promising, with 11% expected this year and 7% next. Strong return on capital employed of 23.6% and operating margins of 10.1% strengthen the case for this AIM-traded firm £119m company.

Portmeirion is continuing to grow steadily, in May it reported a 15% rise in total group sales for the first four months of 2018, with group sales up 20% on a constant currency basis over the year. Both stocks have potential, but for me, Portmeirion looks better placed to serve up success.

Unaffordable luxury

As updates go, this morning’s figures were something of a mixed bag.

Despite the “uncertain” economic and political climate, a “steady performance” was seen in the UK thanks to increased spending by tourists in the capital. New products have been well received, with the company’s Amberley bag — released in June — becoming “an instant bestseller“. Progress has also been made overseas with its agreement with Onward Global Fashion allowing Mulberry to build a presence in Japan where it now has five stores.

As a result of these developments, total revenue for the six months to the end of September came in at £74.5m with retail sales growing 2%. Gross margin increased by £1.9m, thanks partly to lower markdown sales.

On the downside, like-for-like sales declined by 1% (although this appears to have reversed since the end of the reporting period). Thanks to increased investment in marketing and the company’s retail network, a pre-tax loss of £600,000 was also recorded.

While these numbers aren’t awful, my biggest issue with Mulberry remains its obscenely high valuation. A forecast price-to-earnings ratio of 99 for the current year looks absurd when you consider that even ‘expensive’, fast-growing online fashion giants Boohoo and ASOS trade on 65 and 62 times forecast earnings respectively. As a result, it’s hardly surprising that Mulberry has a PEG ratio of 6, suggesting that the shares represent very poor value based on the amount of earnings growth expected.

Factor-in negligible (and stagnant) dividends and stubbornly low returns on capital employed and I suggest those wanting to make money from this business may be better off investing in its products rather than its stock. 

A ‘cheaper’ alternative

FTSE 100 behemoth Burberry (LSE: BRBY) is, in my view, a far better buy than Mulberry.

In what must surely be regarded as yet another example of a nervous market overreacting, shares in the retailer tumbled in early November following the announcement by new CEO Marco Gobbetti that he would be taking the brand further upmarket and cutting sales to not-luxury-enough stores in the US. 

As strategies go, I think this is a sound decision for a company whose appeal depends on the exclusivity of its products. By restricting availability, you increase desirability.

Aside from this, the company’s interim numbers (also revealed in November) were better than the market was expecting with adjusted operating profit of £185m being far higher than the predicted £167m. 

Trading at 22 times forecast earnings for the current year, Burberry is clearly still an expensive stock to buy. Compared to Mulberry, however, it looks a steal. 

Thanks to its sizeable net cash position, the company is in robust financial shape and generates consistently high returns on sales and the capital it invests. While unlikely to appeal to income investors, the stock also comes with a forecast 2.4% yield, fully covered by expected profits.

Although some investors may still be concerned by the forthcoming departure of creative chief Christopher Bailey,  I think Burberry remains a solid pick for those willing to hold for the long term.

Let it go

Charles Stanley is flying even higher after today’s final results, with the share price up 3.94% in early trading. Its current share price is 361p, up nearly 24% year-to-date, delighting wise investors who stayed the course. Today it reported profit before tax of £8.8m, turning around a £300,000 loss in 2016. Full-year reported revenue was exactly the same as the previous year at £141.6m, despite disposal of non-core activities. Its balance sheet has been strengthened, with group cash balance of £58.4m against £48.4m before.

In further good news, funds under management and administration rose 17.1% to £24bn, while core business operating margins more than doubled from 3.1% to 7.1%. The company management is aiming for 15% by 2020. The icing on the cake was a 20% increase in the total 2017 dividend to 6p a share, up from 5p in 2016.

Charles Stanley, I presume

Chief executive Paul Abberley thanked the company’s transformation programme for delivering “increased profitability, more satisfied clients and improved staff engagement”, and said the company is now focusing on improved governance, better cost control and a revised remuneration policy. This should make it more streamlined and focused, boosting profitability.

Charles Stanley’s aim to become the UK’s leading wealth manager by 2020 does sound somewhat ambitious and Brexit is clearly a concern, but with City forecasters predicting 54% earnings per share growth in 2018 and 38% in 2019 the outlook is bright (painfully so, given my recent sale). A forecast valuation of 17.1 times earnings is therefore undemanding, and today’s 1.5% yield is forecast to hit 3.9% in 2019. A stock market meltdown could offer a short-term setback, or conversely, an even more exciting buying opportunity. I should never have sold.

Here we go round again

Fashion house Mulberry Group (LSE: MUL) specialises in timeless British luxury and recent share price performance has been stylish, with the stock up 57% in the last three years. However, it is down 2% this morning after its preliminary results for the year to 31 March disappointed.

There are some handsome numbers in there, with total revenue up 8% to £168.1m, profit before tax up 21% to £7.5m and cash rising from £14m to £21.1m. However, investors were scared away by the slowing sales growth in recent weeks. Although full-year sales rose 8% to £128.3m, with like-for-likes up 5%, over the 10 weeks to 3 June retail like-for-likes (including digital) pipped up just 1%.

Retail fail

Gross margins also dipped slightly from 62% to 61.6%, due to a large number of new designs introduced during the first six months, although management noted that production efficiencies returned to normal levels during the second half of the year

Today’s statement also showcased a 6.6% increase in operating expenses to £96.5m, primarily due to higher retail store costs of £3.7m and increased marketing, advertising and promotion costs of £1.6m. Mulberry’s turnaround clearly has a little further to go.

The group’s underlying sales fell by 1.4% to £790.5m last year, pushing adjusted pre-tax profit down by 11.8% to £74.2m. Adjusted earnings per share for the year ending 1 April 2017 fell by 12.2% to 7.2p. The group said the fall was the result of the rising price of commodities such as sugar and cocoa, along with the weaker pound.

Premier’s biggest problem is debt. The firm only managed to reduce its net debt by £11m to £523.2m last year. This means that it s still 3.9 times earnings before interest, tax, depreciation and amortisation (EBITDA). That’s uncomfortably high.

Most companies target a net debt-to-EBITDA ratio of no more than two times. Premier Foods hopes to bring its ratio below three times “in the next three to four years”. To help this process, a £20m cost-cutting programme is planned for the next two years.

Many shareholders will think that the firm’s board should have accepted last April’s possible offer of 65p per share from US group McCormick & Company. At 42p, the firm’s shares are worth 35% less than McCormick’s bid. It’s not obvious to me why the board thought the offer was too low.

Premier stock has a forecast P/E of six for 2017/18. That may seem tempting, but I believe the group’s debt burden means that the share price is likely to remain under pressure for the foreseeable future. I’d look elsewhere.

Does this sky-high price make sense?

AIM-listed luxury handbag designer Mulberry Group (LSE: MUL) doesn’t have debt worries — the group had net cash of £11.3m at the end of September. But this financial security comes at a steep price for shareholders.

Mulberry’s annual profits peaked at £25.3m in 2012. Performance since then has been disappointing. The group reported a loss of £1.4m in 2015 and is expected to report a full-year profit for the year which ended on 31 March.

My concern is that a far greater recovery already appears to have been factored-into Mulberry’s share price. At 1,086p, the stock trades on a forecast P/E of 130 for the year just ended, falling to a P/E of 100 for the current year.

In my view, the only way this valuation might make sense is if Mulberry starts to deliver strong sales growth and rising margins. It’s not clear to me if this is likely.

Although Mulberry does have a new creative director — ex-Louis Vuitton designer Johnny Coca — the group’s sales have yet to break through the high of £168.5m seen in 2012. Profit margins also have a long way to go to reach previous highs. The company reported an operating margin of 3.9% last year, down from 21% in 2012.

This stock already seems to be priced for perfection. Although Mulberry’s future performance might justify this valuation, I’m afraid that any slight disappointment could cause the shares to crash. On that basis, I’m not interested at current levels.

Challenges remain

Famous for its signature check, Burberry (LSE: BRBY) is also known for its trench coats, cashmere scarves, other accessories and, more recently, its high-margin handbags. The retailer has enjoyed relentless growth for over a decade as overseas markets have been lured by the brand’s British heritage. But full-year results to the end of March revealed a drop in pre-tax profits coupled with lower revenues as the slowdown in the key Asian market continued to take its toll. The disappointing results have led to the firm announcing a three-year investment and cost-saving strategy, as well as management changes with a new CEO set to join.

But the challenge facing the luxury market, particularly in China remains a concern, and the City doesn’t expect Burberry to return to growth until at least 2018. The shares have lost a fifth of their value this year, and are trading well below all-time highs of £19 reached in 2015. Currently trading at around £13 with a forward price-to-earnings ratio of 19, I believe this luxury brand is still too expensive, despite the heavily discounted price-tag.

Too risky

Mulberry (LSE: MUL) is another London-listed fashion brand catering for customers with more exclusive tastes. The upmarket retailer designs and sells a whole host of clothing and footwear, but continues to be best known for its luxe leather handbags.

Unlike its much bigger rival Burberry, AIM-listed Mulberry pleased investors with strong results for fiscal 2016. A sharp rise in pre-tax profits to £6.22m, compared to just £1.86m reported a year earlier, and revenues also up from £148.7m to £155.9m came after it introduced more ‘affordable’ luxury products.

After three year of decline, the Bath-based business looks to have turned a corner with brokers expecting a strong rise in earnings this year and next. But the shares are trading at 12 month highs after gaining more than a fifth this year, and I would say that the predicted growth is well-and-truly-priced-in with premium earnings multiples of 110 for this year, falling to a still-expensive 78 for the year to March 2018. The risk remains that the shares could tumble if the company fails to deliver on the ambitious growth forecasts.

Successful growth strategy

Jimmy Choo (LSE: CHOO) is a luxury British fashion house synonymous with designer shoes. The London-listed small-cap remains upbeat about its prospects saying it has enjoyed a good start to 2016 while it continues to deliver its successful growth strategy and remains focused on controlled expansion. Brand awareness continues to grow strongly, particularly in China where the label is under-penetrated.

City analysts are also positive about the company’s prospects, predicting strong double-digit earnings growth over the medium term, with underlying profits expected to reach to almost £30m by the end of next year. Not bad for a company that reported a pre-tax loss of £8.3m as recently as 2014. The shares look good value at 14 times earnings for 2017 given the strong growth outlook, and in my opinion now could be a good time to buy ahead of interim results due on 25 August.