RBC Capital ups Burberry to ‘outperform’, hikes price target

RBC Capital Markets upgraded Burberry on Wednesday to ‘outperform’ from ‘sector perform’ and hiked the price target to 900p from 650p.

The bank also added a "speculative risk" qualifier, on the basis it is potentially an acquisition target for Italy’s Moncler, or other industry players.

RBC said Burberry's share price has not responded to recent unconfirmed press reports, "which may be helpful as it could provide upside if an approach materialises".

More fundamentally, and irrespective of any potential takeover, RBC said it agrees with Burberry's approach to focus on outerwear, with new chief executive Joshua Schulman expected to present further details on strategy at the interim results on 14 November.

RBC said the valuation remains depressed, with Burberry trading at 1.2x CY25E EV/sales, which is a material discount to the luxury sector on 3.5x and its historical average of 2.2x.

Online fashion publication Miss Tweed suggested last weekend that Moncler could be considering a bid for the London-listed luxury fashion brand.

According to Miss Tweed, several industry sources said that Bernard Arnault, chief executive and controlling shareholder of LVMH - which recently invested in Moncler - was "keen" to see such a deal happen.

RBC said there is "some logic" to such a transaction.

"Burberry's patchy product strategy track record with poorly-received forays into leather goods rather than focusing on its core outerwear heritage appears to finally be on a course correction path judging by recent fashion shows and industry comments under new CEO Joshua Schulman," it said.

"This makes the proposition more attractive for Moncler, as it is a sector leader in outerwear (€1.9bn revenues, 75% revenue mix), whilst Burberry's outerwear business potentially has room for further growth (£890m, 30% mix).

"Burberry's current value is less than half of peak £10bn market capitalisation in FY23 (versus £3.1bn today) making any potential acquisition offer relatively opportunistic in our view."

At 0940 GMT, the shares were up 2.5% at 837.60p.