UK Stocks: Burberry Group and Two Others Potentially Undervalued Based on Cash Flows#

Burberry Group (LSE)#

• Overview: Burberry Group plc, a global luxury goods manufacturer, retailer, and wholesaler, operates in Asia Pacific, Europe, the Middle East, India, Africa, and the Americas, with a market cap of £4.25 billion. Its revenue streams include Retail/Wholesale (£2.40 billion) and Licensing (£67 million).
• Current Price and Valuation: Trading at £11.82, Burberry is 47% below its estimated fair value of £22.29 based on discounted cash flow (DCF) analysis, suggesting significant undervaluation.
• Financial Performance: For FY2025, Burberry reported a net loss of £75 million and a loss per share of £0.21, compared to a £0.42 profit in 1H 2024, with revenues down 17.08% to £2.46 billion. Despite this, analysts forecast robust earnings growth of 47.71% annually, outpacing the UK market’s 14.3%, with revenue growth at 4.2% per year.
• Analyst Price Targets: The average 12-month price target is £11.17, with a range of £4.95 to £14.70, indicating a potential 4.35% downside from £11.50 as of June 30, 2025. However, HSBC recently raised its target to £14.00 from £12.50, maintaining a Buy rating.
• Valuation Metrics:
  • P/E Ratio: Not applicable due to negative earnings (TTM loss of £75 million).
  • P/S Ratio: 1.73x, below the UK luxury industry average.
  • P/B Ratio: 3.76x, reflecting market confidence in brand value despite losses.
  • EV/EBITDA: 12.20x, reasonable for the luxury sector.
  • EV/FCF: 15.34x, indicating moderate cash flow generation relative to enterprise value.
  • EV/S: 2.29x, suggesting undervaluation compared to revenue.
• Risks and Considerations: High share price volatility (8% weekly), declining wholesale revenue, and a global luxury market slowdown pose risks. Job cuts of up to 1,700 by 2027 aim to save $133 million, signaling a turnaround under new CEO Joshua Schulman, but investor patience is waning. The stock’s Altman Z-Score of 1.9 and Piotroski F-Score of 3 suggest potential financial distress, raising value trap concerns.
• Outlook: Despite recent losses, Burberry’s strong brand heritage, positive analyst upgrades, and bullish technical indicators (e.g., RSI hidden divergence, price above 20-day/20-week moving averages) suggest potential for recovery. Posts on X highlight optimism for a breakout quarter.

Empiric Student Property (LSE)#

• Overview: A leading provider of premium student accommodation in the UK, with a market cap of £682.72 million and revenue of £84.20 million from student and commercial lettings.
• Current Price and Valuation: Trading at £1.03, it is 10.7% below its fair value of £1.15 based on DCF, indicating mild undervaluation.
• Financial Performance: Profit margins dropped from 66.3% to 40.9%, but earnings are projected to grow 22.8% annually, surpassing the UK market. A proposed £710 million acquisition by Unite Group PLC could impact valuations.
• Risks and Considerations: The acquisition proposal introduces uncertainty, and declining margins signal operational challenges. However, the UK’s strong student housing demand supports long-term growth.

TBC Bank Group (LSE)#

• Overview: A financial services provider in Georgia, Azerbaijan, and Uzbekistan, with a market cap of £2.57 billion and revenue of GEL 2.34 billion from Georgian Financial Services.
• Current Price and Valuation: Trading at £46.40, it is 49.9% below its fair value of £92.54, indicating significant undervaluation.
• Financial Performance: Earnings grew 23.9% annually over five years, with a forecast of 17.2% annual growth, outpacing the UK market. Q1 2025 showed strong net interest income and dividend declarations, though bad loans at 2.5% remain a concern.
• Risks and Considerations: High bad loan levels and regional economic risks could impact stability, but strong earnings growth and cash flow support undervaluation claims.

Market Context#

• FTSE 100 Challenges: The UK market faces headwinds from weak Chinese trade data and declining commodity prices, impacting major firms and contributing to FTSE 100 volatility.
• Undervaluation Opportunities: Stocks like Burberry, Empiric, and TBC Bank are identified as undervalued based on cash flow analysis, appealing to value investors in a turbulent market. The screener lists 54 such stocks, with discounts ranging from 41.9% to 49.9%.

Conclusion#

Burberry Group (LSE), trading at a 47% discount to its intrinsic value of £22.29, presents a compelling opportunity despite recent losses, supported by strong brand equity and forecasted earnings growth of 47.71% annually. Empiric Student Property and TBC Bank Group also show undervaluation, with discounts of 10.7% and 49.9%, respectively, driven by sector-specific growth prospects. Investors should weigh risks such as Burberry’s volatility and TBC’s bad loans against their growth potential and conduct thorough due diligence.