Broker tips: Burberry, Whitbread, REITs

Luxury fashion brand Burberry took a hit as both Morgan Stanley and Deutsche Bank cut their price targets on the stock.

DB cut the price target to 2,200p from 2,240p, saying it’s more cautious on trends in China and in the US and is struggling to see earnings momentum.

"With less inbound travel into Europe and weaker domestic consumer the EMEIA region looks to have finally cracked as well," Deutsche said.

The bank, which rates the shares at ‘hold’, lowered its FY24 adjusted EBIT estimate by 2% to £605m.

Meanwhile, Morgan Stanley reduced the price target to 2,200p from 2,400p.

The bank said it was lowering tis 2Q24 like-for-like sales growth estimate to 4% from 7% as it accounts for “softening global demand and heightened macro pressure”. It also cut its FY24 EBIT estimate by 2% to £608m.

MS, which rates Burberry at equalweight, said there is a potentially attractive recovery story.

"The successful implementation of Burberry's repositioning strategy could represent an attractive long-term proposition,” it said. However, it still sees earnings risks ahead.

"With much smaller exposure than peers to evergreen products, resilient categories (such as leather goods) and ultra-premium categories, we think Burberry will most likely continue to lag best-in-class peers," it said.

UK real estate investment trusts (REITs) offer a "compelling" investment opportunity, according to Morgan Stanley, who said that the sector could soon see a recovery as challenging macro conditions slowly begin to ease.

"As many as seven of the 11 stocks we rate 'overweight' [in the sector] after UK-listed," Morgan Stanley said. These are: British Land, Derwent London, Great Portland Estates, Hammerson, Safestore, Segro and Unite.

"We are alive to the fact that broader UK exposure and offices as a sub-sector are out of favour, but at current valuation the risk reward is compelling in our view," the bank said.

Looking ahead, Morgan Stanley said that the REIT sector typically starts doing well towards the end of economic downturns.

"In recent decades, the listed UK property sector (in nominal terms, and on a total return basis) troughed a quarter before real GDP troughed. Are we there yet? Maybe, maybe not. The house view at Morgan Stanley is that 3Q23 will be the only quarter with negative sequential GDP growth but with risks to the downside. Even so, the trough in real GDP could be closer than some assume."

Meanwhile, it predicts that net asset value (NAV) valuation declines are likely over for the majority of companies, with metrics close to or already at all-time lows, which could be a "re-rating turning point" for many stocks.

It also pointed out that REITs historically have performed well in past crises once the Bank of England begins cutting rates. While we are not quite there yet - with the BoE only pausing its rate-hiking cycle last week - "the Bank no longer hiking is a significant signal, we argue".

Redburn downgraded its stance on Premier Inn owner Whitbread to ‘sell’ from ‘neutral’, with a target price of 3,000p.

Redburn said consensus expectations for pricing versus 2019 are 20% higher for Whitbread than any other hotel group it covers.

"We argue the data suggests this is less due to supply restrictions than the company believes," it said.

"Whitbread is a superbly run business, with top-class cost control, but this isn’t enough when we are 11% below consensus for RevPAR (revenue per available room) in 2026, which drops through to 16% at EBITDA."