Top UK Stocks to Watch: Burberry shares fall despite topping sales estimates

Burberry sales jump as shoppers return to stores, Rio Tinto nudges down its guidance for iron ore shipments, AstraZeneca is disappointed by recommendation for roxadustat, Micro Focus settles its patent fight with Wapp, and DCC on course for another year of profit growth.

UK

Top News: Burberry beats expectations and raises wholesale targets

Burberry beat expectations in the first quarter of its financial year after focusing on getting the full value for its luxury goods as it started to welcome customers back to stores and said it expects a better performance from its wholesale division than previously thought.

Retail revenue jumped 86% to £479.0 million from just £257.0 million the year before. That was flattered by the weak comparative period the year before when sales were derailed by the introduction of lockdowns that closed down clothing stores. Still, it was much better than the £444.5 million forecast by analysts.

Comparable store sales were up 90% year-on-year in the quarter and also managed to come in 1% higher than two years earlier, marking a return to pre-pandemic levels of growth.

That performance was impressive considering Burberry warned comparable store sales would be hurt by its focus on full-price sales, which jumped 121% year-on-year and came in 26% higher than pre-pandemic levels. Notably, digital full price sales in the quarter were more than double what it was achieving before the pandemic.

‘We have made an excellent start to the new fiscal year. Full-price sales accelerated as our collections and campaigns attracted new, younger luxury customers to the brand. We saw strong growth across our strategic categories, in particular leather goods and outerwear, and exited markdowns in digital and mainline stores,’ said chief executive Marco Gobetti, who announced last month that he will be leaving the business at the end of 2021.

Burberry said it remains on track to hit its medium-term targets and that its expectations for this year remain unchanged. However, it said it now expects its wholesale division to report a 60% rise in revenue in the first half rather than its original goal of 50%. That is thanks to a stronger order book and more favourable foreign exchange rates.

‘Despite the continuing challenging external environment, we are very pleased with the progress against our strategy. With the company firmly set on a path of growth and acceleration, we are confident of achieving our medium-term goals,’ Gobetti said.

Where next for the Burberry share price?

After falling through its multi-month ascending trendline and its 50 day ma at the end of June, Burberry found support at 1970p and has attempted to climb higher.  

The receding bearish bias on the MACD and a bullish crossover supports a break through resistance at 2065p the 100 dma. A breakthrough 2100p a level which has capped gains across July could see the price test 2150p the 50 dma. A break above here could see the buyers gain momentum and head towards trend line resistance.

On the flip side sellers might look for a move below 1966p for a deeper selloff to 1890p. 

Rio Tinto adjusts guidance after Pilbara shipments drop

Rio Tinto reported a large slump in shipments of its key commodity iron ore out of its Pilbara operations in Australia during the second quarter and warned that they will be toward the lower end of its guidance range in 2021.  

Iron ore production was down 9% year-on-year in the quarter to 75.9 million tonnes while shipments dropped 12% to 76.3 million tonnes.

It also warned that iron ore shipments for the full-year would be toward the lower-end of its 325 to 340 million tonnes guidance range because of the uncertainty posed by the pandemic and the risks of hooking-up new mines whilst protecting the wider area. Plus, the cost of producing iron ore out of Pilbara is expected to be higher at $18 to $18.50 per tonne compared to its previous target of $16.70 to $17.70.

Rio Tinto shares were trading 1.5% lower in early trade in London this morning at 6061.5p.

The global economy, in particular China, recovered strongly and we are intensely focused on servicing our customers with as much product as we can. However, we faced some challenges in the first half notably at our Pilbara operations, which were impacted by replacement mine tie-ins and materially higher rainfall,’ said chief executive Jakob Stausholm.

‘Heightened COVID-19 constraints, which resulted in numerous travel restrictions, added further pressure on the business and limited our ability to access additional people, particularly in Western Australia and Mongolia, in order to deliver operational improvements or maintenance initiatives and accelerate projects,’ he added.

It was a mixed performance for the rest of the portfolio, Bauxite output was down 6% in the quarter at 13.7 million tonnes, aluminium output increased 4% to 816,000 tonnes, and mined copper production plunged 13% to 115,500 tonnes.

Rio Tinto reaffirmed its production guidance for 2021 across all of its commodities apart from titanium dioxide slag, having abandoned its target after implementing a force majeure at its Richards Bay Minerals mine in South Africa that has suffered from protests and unrest. It also said bauxite and copper production will also be at the lower-end of its target range this year.

AstraZeneca ‘disappointed’ by roxadustat vote outcome

AstraZeneca said an advisory committee has decided that roxadustat should not be approved for the treatment of anaemia in chronic kidney disease in the US.

The Food & Drug Administration’s Cardiovascular and Renal Drugs Advisory Committee voted 13 to one that the benefit-risk profile of the drug does not support approval to treat patients not undergoing dialysis, and voted 12 to two against it being approved for dialysis patients.

The vote is advisory and the FDA will make the final decision, although it often follows the advice of experts. Notably, roxadustat has already been approved in the likes of China, Japan, Chile and South Korea to treat both types of patients and is under review for approval in other regions, including the European Union.

‘New solutions are needed for the six million people in the US affected by anaemia of chronic kidney disease. Although we are disappointed by today's outcome, we will continue to work closely with our partner FibroGen and the FDA to determine the path forward for roxadustat,’ said AstraZeneca’s executive vice president of R&D Mene Pangalos.

AstraZeneca shares were trading 0.5% lower in early trade this morning at 8285.0p.

Micro Focus settles patent battle for $67.5 million

Micro Focus has agreed to pay $67.5 million in order to settle a patent litigation case brought against the business by Wapp Tech ‘without admission of liability’.

Wapp Tech filed a claim against Micro Focus back in 2018, alleging products within the company’s AMD product line, including LoadRunner and Performance Center, infringed three of its patents.

‘The company has now reached a settlement with Wapp for payment of $67.5 million for complete resolution of the dispute without admission of liability. This amount was recognised as an exceptional item within the group's results for the six months ended 30 April 2021 and will be cash settled imminently,’ Micro Focus said.

‘In concluding this matter, the board considered a range of factors, including the possible time, cost and significant resources required for the appeal process and concluded that it was in the best interests of the company that a settlement should be reached,’ it added.

Importantly, the settlement agreement also means that Micro Focus has been granted a worldwide irrevocable licence for Wapp’s three patents that should allow it to avoid sparking a dispute with Wapp in the future.

Micro Focus shares were up 0.3% in early trade this morning at 406.55p.

DCC on track to deliver another year of strong profit growth

DCC said it will deliver another year of strong profit growth after making a solid start to its new financial year, driven by its healthcare and technology divisions.

The company, which provides sales, marketing and support services around the world, said operating profit growth in the three months to the end of June was ‘well ahead of the prior year and modestly ahead of expectations’.

DCC shares were up 2.5% in early trade this morning at 6046.0p.

Organic profit grew ‘very strongly’ at DCC Healthcare thanks to an improved performance in the US and Europe, and thanks to the return of elective surgeries plus the contribution from its acquisition of Worner in Germany. DCC Technology also delivered strong profit growth thanks to its performance in North America.

DCC LPG also delivered good growth after volumes recovered as anticipated after being hard hit the year before, while DCC Retail & Oil also saw volumes grow as economies reopened and people started to travel again.

‘DCC expects that the year ending 31 March 2022 will be another year of strong operating profit growth and continued development activity,’ the company said.

The update, which comes ahead of its annual general meeting today, will be welcomed by shareholders as it builds on the progress made last year, when profits and cashflow continued to improve despite revenue being hit by the pandemic.

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