Battered Burberry a 'buy' for bullish Goldman Sachs
Despite wider analyst concerns about a Chinese slowdown on Burberry, Goldman Sachs reiterated its 'buy' recommendation on the fashion group and said it expected the shares to rerate considerably higher.
Burberry Group
1,160.50p
13:40 23/04/24
FTSE 100
8,041.48
13:40 23/04/24
FTSE 350
4,419.68
13:40 23/04/24
FTSE All-Share
4,374.02
13:40 23/04/24
Personal Goods
16,207.77
13:39 23/04/24
A 12-month target price was 2,323p, offered 47% upside to the last closing price of 1,578p.
With profit guidance maintained by the company in its first-quarter trading update on Wednesday, Goldman noted that Burberry continues to deliver "stand-out" top-line growth of above 8% at constant currencies with 6% like-for-like growth and 15% cash flow growth.
"We believe any pressures felt by Burberry in Hong Kong are sector-wide and will be magnified for those who have over-expanded their store bases and elevated price points too far as they reduce exposure to the growing, core middle class (Prada, Tod’s, Gucci)."
With the shares having underperformed the sector 15% in the year to date due to investor concerns on China, slowing topline momentum, margin sluggishness and forex headwinds, Goldman said it saw significant value in Burberry shares on both an absolute and relative basis.
The shares trade its lowest valuations since the financial crisis and the comparison with LVMH is "compelling", analysts said, as Burberry generates higher revenue and earnings growth and 600 basis points higher return on capital while trading on lower multiples.
"We believe lower price points, a focus on millennials and a well constructed digital strategy are key to this; from which evidence continues to mount: mobile penetration tripling year-on-year, rising brand engagement driving positive price mix."