RBC upgrades Burberry to 'sector perform'

RBC Capital Markets upgraded Burberry to ‘sector perform’ from ‘underperform’ and lifted the price target to 1,400p from 1,200p as it upped its earnings per share forecasts, largely due to a bigger FX tailwind.

The bank said Burberry's equity story is now centred on driving retail productivity in a modest growth environment and leveraging its digital edge to expand into e-commerce.

“FY17 should be difficult but GBP weakness provides a welcome breathing room. We see Burberry moving faster than peers to adapt to millennial consumer behaviour changes and recent management shake-up should support the stock into next year.”

The Canadian bank reckons consensus expectations of retail comps – up 1% for the second quarter – look achievable following comments from several peers pointing to sequential improvement in July to August.

Strength in the UK may help to offset weakness in Continental Europe while improving trends in China may mitigate recent price cuts in Asia, RBC said.

In addition, it said the announcement of Marco Gobetti as Burberrry's new CEO was a game changer, changing a management set-up that was not ideal in the current demand environment.

“Mr Gobetti is regarded as a strong retail operator who turned around Givenchy and Celine at LVMH. His arrival should allow Mr Bailey to focus on his chief creative officer role and do what he does best. It is difficult to be negative on Burberry shares ahead of Mr Gobetti's arrival when we examine other management shake-up stories in the retail & consumer sectors.”

At 0917 BST, Burberry shares were up 0.4% to 1,359p.