Burberry bounce for Footsie as boss says luxury goods ‘can only get better’

Rosamund Urwin
23 Sep 2009

Forget the pinstripes, checks were all the rage in the City today. Burberry shares shot up more than 7%, taking the fashion group to the top of the leader board at its new home in the FTSE 100 index. Not only that, but the stock hit levels not seen since pre-Lehman Brothers days.

Was it all due to the afterglow of last night's celeb-spangled catwalk show, which was greeted with rave reviews in the fashion Press? Possibly.

A more likely cause, though, was chief executive Angela Ahrendts' post-show comments to the Bloomberg news agency that the business “has been on fire for quite a while now” and the luxury goods market “can only get better”.

Analysts queued up to highlight the comments to clients and buyers for the shares piled in, driving them up to 511.5p before settling up 32.4p at 509p. The stock had already more than doubled this year, making it the best performer among quoted European fashion houses.

Shares gained in most sectors, the Footsie adding to yesterday's gains with a rise, albeit modest, of 7.96 points to 5150.56. There was little appetite among investors for taking any new big positions though, ahead of tonight's interest rate decision from the US Federal Reserve. New York was even more humdrum, with the Dow Jones Industrial Average treading water at 9830.87.

Let's hope the Fed's as positive as our own Bank of England. The release today of the Old Lady's monetary policy committee minutes were generally well-received by markets.

You'd have thought Mervyn King's hopes for the economy would have been good for the pubs sector; Brits tend to spend more in their local when the economy's going better. But brokers at UBS reckon pub stocks now look about as appealing as a busy boozer's slop tray. It advised dumping shares in four of the biggest operators: Enterprise Inns, Marston's, Greene King and Mitchells & Butlers (M&B). Analysts at the Swiss bank think investors have become punch drunk on a triple-whammy of good news for the sector: the improved economic outlook, England qualifying for the World Cup and changes to the rules on pub gaming machine stakes and prizes.

But they reckon shares in the sector have rallied so sharply that anything less than a V-shaped economic recovery will leave them vulnerable.

They also warn that the margins for leased and tenanted pubs are unlikely to return to former highs, with the recession and smoking ban highlighting the need to redistribute profits from the pub companies to the lessees and tenants. There could be two years of lease renegotiations ahead, which will eat into margins.

UBS is therefore particularly bearish on the leased pubs market, preferring managed pub operators such as M&B. But they have still cut their rating on the All Bar One owner from neutral to sell, believing M&B will not be able to improve margins swiftly when consumer spending bounces back. The downgrade left the sector nursing a nasty hangover. Greene King was the biggest faller on the mid-tier, plunging 6.6p to 440.9p. Marston's was off 4¼p at 102¼p, Enterprise Inns lost 4½p to 139p and M&B sank 93¾p to 289p.

JD Wetherspoon was spared the sell-off, however. It remains UBS's preferred pick, with a neutral rating. Its shares added 4p to 500½p.

All eyes were on the property sector after builders Barratt Developments, 1.3p higher at 269.8p, and Redrow, 2.4p weaker at 231.6p, and property giant Liberty International, down 19p at 545p, all announced they are tapping investors for cash.

Mervyn's words down at Threadneedle Street helped boost the banks, with Standard Chartered up 48p at 489p leading the charge. Lloyds gained 1.4p to 109.1p. The Council of Mortgage Lenders said the number of home loans approved in August was up 81.4% year on year, but that was still against last year's rubbish figures.

Brring brring... Yell's debt restructuring went down like a tonne of phone books with long-suffering investors. Shareholders have been less than keen to throw more good money at the business just to see it swallowed up by the lending banks. Now Yell wants £500 million from them to pay down debt. It was broadly expected and will be grudgingly supported, but that doesn't make it any more palatable. Yell fell 8.8p to 65.46p. Whisper it softly, but those shares were changing hands at 643p in 2007. When will it be time to hang up?