Resilient Burberry shares are worth checking out

Shares in Burberry, the luxury goods group, start unconditional dealings today, giving private investors their first chance to buy. Financial institutions have been able to trade the shares for a week now and they have performed remarkably well in difficult markets. Having been priced at a bottom of the range price of 230p they were at 229p yesterday, up 3p on the day.

So are the shares worth checking out? The company certainly has several big attractions, and these seem to outweigh the risks. The first advantage is the management team, led by the energetic American Rose Marie Bravo, who has transformed the business. In three years she has grown profits from £18.5m to £90m and margins from 8 per cent to 18 per cent.

Along the way, a tired name has been reinvented as a hot fashion item worn by catwalk models on their wedding days. Margins have been helped by launching accessories such as handbags and scarves.

The finances have further been transformed by the buying in of franchise operations, such as those in Hong Kong and Spain, which will boost profits. New store openings are providing greater scale.

Growth will come from more of the same. The current portfolio of 69 stores will be boosted by new branches this year in California, Knightsbridge and Barcelona, with three a year thereafter. Accessories, such as sunglasses and children's clothing, will be pushed further in the company's biggest two markets – Japan and Spain – where they are under-represented.

In wholesaling, which accounts for more than half of Burberry's sales, there will be incentives for department stores to sell a wider range of products.

There are risks. One is exposure to the Japanese consumer economy. Another is the Burberry check going out of fashion in some markets, such as the UK. To counter this Burberry has launched its "undercover check" project where the famous Burberry design is only used on 20 per cent of the range, mostly in details such as linings.

On SG Securities' 2003 profit forecast of £106m the shares trade on a forward price-earnings multiple of 16. That is a discount to other luxury goods brands such as Gucci and LVMH (which trade on 19 or 20). But it is a premium to US fashion labels such as Polo Ralph Lauren which trade on just 10.

However, Ms Bravo is worth backing and the resilient performance of the stock so far is encouraging. Buy.

Be ready to take profits at Icap

There is nothing so certain in these uncertain times as this: those who trade in uncertainty are getting rich.

Icap, one of the world's largest inter-bank brokers of derivatives, is raking it in because of the volatile markets and wide disagreements over future interest rate moves or relative economic performance. More and more institutions need to hedge, or want to bet, on future interest rate moves. That is just what Icap's products are for. No wonder Icap's shareholders were told yesterday that the group's financial year has begun better than expectations.

These sort of market conditions don't last for ever, of course, so neither will Icap shares' exponential growth.

The company said yesterday that more than a third of US government bond trades are now carried out electronically, cutting out the need for a pinstriped dealer on the phone. These are still in demand, though, for the niche transactions in illiquid derivative products – hence the embarrassing High Court battle over three dealers who left rival Cantor Fitzgerald to join Icap earlier this year. Cantor is suing Icap over the issue and claims an Icap plot to weaken it after it lost 600 employees in the World Trade Centre. While Icap denies the accusation, some of the mud might stick, giving Cantor a chance to claw back market share lost as a result of the tragedy.

Icap has strong cashflows even after capital investment, but profits – forecast by Teather & Greenwood to be up 15 per cent to £102.5m this year – would dive if trading slowed.

With the share price up 51.5p to 840p and earnings per share for this year forecast at 70p, the stock trades on a price-earnings ratio of 12. It doesn't deserve a p/e any higher than that at this stage, although there could yet be some upside for the p if the e continues to outstrip expectations. That will become less likely through the year, however, and the prudent investor should be ready to take profits.

Still time to invest in Parthus

For a relative newcomer, Parthus, which licenses technology for use in mobiles and other electronic devices, is showing maturity beyond its years. The company is meeting analysts' expectations, in market conditions that have wrong-footed plenty of other tech companies.

Sales in the three months to 30 June were $10.8m, up only a smidgen on the first quarter. But the loss of $2.3m was better than expected and well beneath the $3.3m loss of the first quarter.

Royalty revenues from products using Parthus technologies are surging ahead and the company is still on track to break even later this year. The other piece of good news was on costs, which fell 20 per cent from the first quarter to $9m in the second, thanks to a programme of job cuts and reduced expenditure on sales and marketing.

Parthus is merging with Ceva, which licenses so-called "digital signal processing" technology used in devices such as MP3s and in radars. The combined group should be cash positive and will be a force to be reckoned within its niches, but there could be difficulties integrating the two groups.

At the end of the day, even the best-managed companies remain at the mercy of general trading conditions. While conditions in the semiconductor industry have stabilised, it remains impossible to predict the timing of a substantial recovery.

So there may be no short-term catalyst to push Parthus shares much further, despite their 2.5p rise to 23p yesterday. Its $114m cash pile means there is no danger of it going under, but there is probably still time to buy into the story.