Sunday share tips: BT Group, Burberry

Three’s acquisition of Telefonica’s O2 is on the skids after the owner of the former, Hutchinson Whampoa, failed to turn the heads of the European competition authorities, with potential ill consequences for BT Group, the Financial Times’s Lex column said.

Hutchinson argues that a move towards three competitors, down from four, would spur infrastructure investment, but EU competition chief Margrethe Vestager is unconvinced.

Indeed, research from Ofcom, the UK regulator, points in exactly the opposite direction, competition begets investment, not the other way around.

If the deal went through, Three would become the largest player in the space, when measured on the basis of revenues.

Unfortunately, BT also stood to gain from having one less competitor in the UK market. Over the past two weeks, as the O2 deal appeared increasingly less likely to gain the regulators’ blessing, BT’s share price fell rapidly.

Should the EU finally decide to shoot down the deal, BT’s stock price will share the pain, Lex concluded.

Burberry’s drive to expand its footprint in the beauty space, such as through its new cologne Mr.Burberry, is one of many levers being pulled by its boss Christopher Bailey to get the company moving in the right direction again, said The Sunday Times’s Danny Fortson.

However, the economic slowdown and a crackdown on excess by the Communist government in China have likely hit it hard. The impact on the sector was reflected in a profit warning from rival Hugo Boss just a couple of months ago.

Cost cuts are also running out of steam as conditions in the States worsen.

The share price has gained just 13% since Bailey took over at the helm from Angela Ahrendts and at 18.3 times earnings are already trading at a premium versus its peers.

Nevertheless, that is probably more of a reflection of the company’s past glories under Ahrendts than of the outlook, “which is uninspiring”.

“The company will seek to turn the tide on Thursday when it gives a second-half trading update. This could get ugly. Sell,” Fortson recommended.