Deutsche Bank lowers target price on Burberry

Deutsche Bank noted that Burberry will provide more details on its strategy in November but it appears that one of the firm's priorities will be investing gains from operational leverage back into the business to drive revenue growth.

The German bank said Burberry's brand strength had been aided by its elevation strategy and price increases that have been accepted by its consumer, while its robust cash generation was supporting a £400.0m share buyback during the 2023 financial year.

DB also made some small adjustments to its earnings forecasts after Burberry's 2022 financial year earnings beat and higher FX impacts largely offset an underlying cut to earnings on the back of a weaker first-half performance in China.

"We maintain our forecast of HSD constant FX sales growth for the next few years before fading to MSD% in FY27e and LSD% by FY30e. We cut our FY23e PBT forecast by -3% and FY24e by -6%. We now forecast 10% EPS growth in FY23e and 9% in FY24e. We lower our DCF-derived price target to 1950p largely in line with our slightly more cautious view on earnings and increase in WACC to 9% (from 8.5%) which implies c.19x Cal 22 PE compared to the current c.15.5x," said the analysts.

"We maintain our 'hold' recommendation as we can see the shares largely trading in line with the sector until there is more clarity on China and the strategic plan update."

Reporting by Iain Gilbert at Sharecast.com