Credit Suisse upgrades Burberry, says bear case is behind us

CS said that after being negative for over two years on the basis of a growth slowdown weighing on margins, the bear thesis has largely played out. The bank said the bulk of the earnings downgrades could be behind us, noting that consensus pre-tax profit forecasts have come down 20% in the last two years or 40% after adjusting for the positive sterling effect.

"We believe earnings risk is now more limited as the bulk of the £100m of annualised cost savings announced last year start to feed through PBT from FY18. We note that FY19 consensus PBT of £525m assumes almost no organic profit growth," it said.

In addition, Credit Suisse pointed to the fact that margins are close to historical lows and low relative to peers. It also said the beauty deal with Coty is attractive and that Burberry is the cheapest stock on earnings multiples in its coverage universe.

However, the bank said it was struggling to get any more constructive on the stock for now. The market is unlikely to hear from the new chief executive before the interims in November and in the meantime, sales growth is set to keep lagging peers in the next couple of quarters.

At 1420 BST, the shares were up 2.1% to 1,636p.