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Broker snap: Brokers downgrade Burberry but stay long-term fans - UPDATE

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Broker snap: Brokers downgrade Burberry but stay long-term fans - UPDATE

Tue, 11 September 2012
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Broker snap: Brokers downgrade Burberry but stay long-term fans - UPDATE
Burberry Group Quote more

Price: 1,531.00

Chg: 29.00

Chg %: 1.93%

Date: 16:40

FTSE 100 Quote

Price: 6,525.88 Chg: 82.92 Chg %: 1.28% Date: 16:29

Iconic British luxury brand Burberry lost a fifth of its market value on Tuesday after warning that full-year profits will be at the lower end of current forecasts, prompting several brokers to remove their ‘buy’ ratings on the stock.

However, while analysts now recommend to hold on to shares, most have maintained their positive longer-term views for the business.

Burberry said that retail sales growth at constant exchange rates was 6% in the 10 weeks to September 8th: new space contributed 6% while comparable store sales were flat "with a deceleration in recent weeks".

Profits before tax (PBT) for the year to March 31st 2013 are expected to be around the lower end of market expectations, the group said. According to Investec, the range for PBT forecasts is £407-455m.

By 14:17, shares were down 19.72% at 1,103.85p.

Nomura lowered its recommendation from 'buy' to 'hold' and reduced its target price from 1,450p to 1,210p after lowering its forecasts: current-year and forward PBT estimates were cut by 4% and 6%, respectively.

The broker said that the 'deceleration" was a "global phenomenon”, primarily driven by lower traffic.

"Delivery on margin growth, merchandising initiatives and continued prospects for double-digit space at high returns are the reasons to own the shares long term, in our view. However, with very limited near-term visibility, we lower our rating."

Meanwhile, Seymour Pierce has cut its rating from 'buy' to 'hold' and cut its target price from 1,700p to 1,200p after slashing its current-year and forward PBT forecasts by 12% and 15%, respectively.

The broker said this afternoon: “Today’s share price fall is disproportionate to the downgrade given the recent de-rating. However, the lack of demand visibility on whether this is a blip or worse to come will impact sentiment short term so we downgrade our recommendation to ‘hold’ (‘buy’ since 3 December 2010). A clearer outlook would make us more positive again as we still consider Burberry to be a great long term growth story.

Investec cut its ‘buy’ recommendation to 'hold' and reduced its target price from 1,640p to just 1,140p, saying that it has cut its current-year and forward PBT forecasts by 11% and 18%, respectively.

"We remain long-term fans of Burberry, and would not recommend selling the shares at this level, but, until more information is known, nor can we recommend buying here."

FTSE 100 Top Risers

Name Last Chg.% Time
Barclays 240.80 8.20 16:59
Royal Bank of Scotland Group 388.00 6.21 17:03
International Consolidated Airlines Group SA (CDI) 409.20 4.74 16:48
St James's Place 742.50 4.56 16:59
ARM Holdings 875.00 4.35 16:59

FTSE 100 Top Fallers

Name Last Chg.% Time
Randgold Resources Ltd. 3,678.00 -2.67 17:01
Fresnillo 695.00 -2.65 17:09
Direct Line Insurance Group 275.70 -1.95 17:01
TUI Travel 398.60 -0.55 17:01
Morrison (Wm) Supermarkets 154.80 -0.51 17:09