Image source: Aston Martin
Actions of the fancy chocolate seller Chocolate Hotel surged 160% on Thursday (Nov 16) after confectionery giant Mars said it will buy the British company for £534 million. This high premium suggests that the market had been undervaluing the business. Could there be other undervalued luxury stocks to buy for my ISA in 2024?
There are two candidates here.
Burberry
Also on Thursday, FTSE 100 fashion group Burberry (LSE: BRBY) published its first half results. In response, shares fell almost 10% to £15.73.
This means the share price has fallen by almost a quarter in 2023. In five years, it is down 13%.
To be fair, the culprit for the sell-off – a drop in demand for luxury goods – is not unique to Burberry. Major industry players including LVMHhave been warning of slowing demand in recent months.
Burberry confirmed that this slowdown could affect its sales for the full year. The management said: “If weaker demand continues, it is unlikely that we will meet our previously stated revenue guidance for FY24..”
For the year ending March 2024, this could mean adjusted operating profit towards the lower end of the current consensus range (£552m-£668m).
The company increased first half sales 4% year-on-year to £1.4bn, but growth was hampered by currency difficulties.
In the Asia Pacific region, the first six months were largely a tale of two quarters. Sales growth of 36% in the first quarter slowed to just 2% in the second, and sales in mainland China fell 8%.
This points to a couple of issues regarding Burberry. First, it doesn’t have a diverse basket of brands to help offset that weakness. Second, its fastest-growing market is China, where consumer confidence is low.
bright spots
Chief executive Jonathan Akeroyd confirmed this revenue warning was linked to macroeconomic concerns and not new creative boss Daniel Lee’s recent collections. These products have been well received by wholesale customers, he assured.
Another positive aspect was that the interim dividend increased by 11% to 18.3p. The stock now yields an attractive 3.8%.
Additionally, the P/E ratio is currently an undemanding 12.5. Of course, we don’t know where near-term earnings are headed now. But at first glance that valuation seems too cheap to me.
Therefore, I put the stock on my watchlist while I dig deeper.
Aston Martin
The second luxury stock I have been watching is Aston Martin (LSE: AML).
The share price is down a staggering 94% since the iconic British carmaker went public in late 2018.
On Nov. 1, the company said third-quarter production issues for its new DB12 model meant 2023 volumes will hit 6,700 units instead of 7,000.
It posted a quarterly adjusted operating loss of £48.4m on net income of £362m. Both failed to meet market expectations.
On a positive note, CEO Lawrence Stroll said there has been “extraordinary demand”for the new DB12. And 55% of initial buyers are new to the brand, he noted.
However, it still has a worryingly large net debt position (£750m in the third quarter). And I fear there could be further shareholder dilution.
Will Aston Martin be a very profitable company in five or ten years? Or is it still generating losses? Or acquired? I have no idea and that is my concern. I will continue to hold on ferrari actions for now.
