Stock market

1 potential takeover target from the FTSE 100

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A number of UK stocks have recently emerged as takeover targets. But there is one. FTSE 100 Which I think is going under the radar at the moment.

There is stock Burberry (LSE:BRBY). After a 53% decline over the past 12 months, I think there’s a chance some of its larger rivals are starting to see an opportunity.

Out of fashion

It’s fair to say that Burberry shares have fallen out of favor with investors recently for a few reasons. Some – but not all – have little to do with business.

A cyclical decline in consumer spending is weighing on demand for the company’s clothing. This is most notably true in China, which accounted for 27 percent of sales in 2022.

But Burberry’s problems aren’t just due to a tough economic environment. Since 2019, its sales growth has been consistently weaker than that of its European rivals. LVMH, KeyringAnd Hermes.

LVMH sees sales growth across Asia in 2023, which means the problem isn’t just weak consumer spending in China. There’s something about Burberry that just isn’t firing right now.

Takeover target?

As I see it, Burberry has some assets that could make it an attractive acquisition target for a larger company. In particular, it has a strong brand.

The company’s trench coats are a timeless classic. This is evidenced by the fact that consumers are willing to pay prices that cover the higher price they do in the UK.

Right now, the stock has a market cap of £4.25bn. The premium required to acquire the business outright might make it a bit high for Kering to consider, but it’s too low for LVMH or Hermès.

It’s also worth noting that both LVMH (27) and Hermès (58) trade at higher price-to-earnings (P/E) ratios than Burberry (10). Therefore, there may be scope for using expensive stocks to buy cheap ones.

Should I Buy Burberry Shares?

I wouldn’t be surprised to see a major company looking to acquire Burberry outright. One reason is that the stock looks cheap to me at today’s prices.

Given this, the obvious question is should I consider buying the stock itself? After all, if it’s not valued, there may be an opportunity here.

I’m not ruling it out by any means, but I’m a little hesitant. I think it makes a lot more sense for LVMH or Hermès to take a look at the company than for me.

The main reason is that I don’t think I can fix what’s in the core business. If I had a larger infrastructure to include fashion brands, it might be a different story.

Investing for the long term

Regardless of my view of Burberry’s business, it’s tempting to buy the stock in anticipation of a possible takeover. But it’s a temptation I’m working hard to avoid.

Buying shares in the hope that someone else will pay more for them – even if it’s a good idea – is extremely risky. I would rather stick to stocks that I have a long-term view on.


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