Nomura upgrades Burberry to 'buy' ahead of change

It said since the company announced a review of the global market, its initiatives, efficiency programmes, productivity and capital allocation, expectations have risen in anticipation of change.

Nomura expects the review to be thorough given chief executive Christopher Bailey will have been at the helm for two years in May.

“A change of the group’s approach would be a positive to the market. Despite a recent rebound in the stock, we see potential for a greater valuation if Burberry can successfully drive productivity measures, while being more disciplined on cost and capital allocation,” the Japanese bank said.

Nomura said the company had five areas of focus: productivity, conversion, product, costs and capital allocation and share buybacks.

It said a focus on VIP/regular customers may be more effective than attempting to attract new customers.

It also said its product analysis suggests range overlap.

“Consolidating the sub-brands should drive better availability, an improved shopping experience and a more coherent product architecture,” said Nomura.

It warned of a tough trading environment and the potential costs of implementing initiatives, but said it sees a favourable forex environment and initial benefits of cost initiatives offsetting in full year 2017.

In addition, Nomura said the stock’s valuation appears attractive despite the lack of short-term growth.

It expects full year results on 18 May to be a catalyst.