Deutsche Bank upgrades Burberry, AB Foods, Kering

The bank said 2025 is the year of the snake.

"It is often associated with renewal and transformation by nature of shedding its skin and suggests both challenges and opportunities in the year ahead," it said.

"After two years of luxury underperforming retail and sporting goods we see this changing as the year progresses. Timing will be important. We see the shift in 2H as earnings momentum and sentiment is paramount."

DB said there are even more uncertainties than usual at this time and it sees "volatility" being the watchword.

"We see the weakness in the Chinese consumer as being cyclical rather than structural and see a move away from ‘quiet luxury’ as consumer confidence returns in China buoyed by stimulus."

The bank noted that US tariffs are less relevant for luxury than sporting goods and retailers in its view.

"Margins are set to expand across the coverage with the exception of the UK retailers given higher employment taxation.

"In the spirit of the Year of the Snake our most preferred names reflect a preference for a number of companies undergoing a transformation."

DB upgraded Burberry to ‘buy’ from ‘hold’ and hiked the price target to 1,180p from 860p, saying it offers a credible luxury turnaround story with scope for robust earnings momentum and a significant change in investor perception.

"We believe that the new strategy outlined by Joshua Schulman is both ambitious enough to change the direction and conservative enough in its target to be achievable," it said, adding that the brand has a resonance with the consumer and this can be reignited.

"Burberry has seen the worst share price and EBIT downgrades in our luxury coverage year-to-date. It has also seen the biggest bounce of its lows with a circa 50% recovery," DB said.

"A mid to high teens percentage EBIT margin is achievable for the company and whilst this will not warrant the historic luxury sector price-to-earnings we can see a premium to the clothing retailers."

It upgraded Primark owner AB Foods to ‘hold’ from ‘sell’ and upped the price target to 2,290p from 2,200p as it said the sales and cost pressures facing the business are relatively well understood and there is limited downside to the target price given the valuation.

"The FY24e guidance has been relatively explicit across a number of the key divisions and we see AB Foods as less exposed to the UK National Insurance increase than some peers, the space contribution remains on track for Primark, the business is less exposed to US tariffs and sugar profitability should bounce back in FY26e," it said.

"The valuation is being held back by the Staples component but we see scope a more positive Primark valuation within the mix as LFL sales improve."

Spain’s Inditex was upgraded to ‘hold’ from ‘sell’ and the price target increased to €54.00 from €41.00. "Inditex is a great retailer and we see the current premium valuation as more justified given the move towards higher price points," Deutsche Bank said.

It said the only reason it wasn’t upgrading to a ‘buy’ was the valuation, on circa 26x Cal 25 price-to-earnings.

DB cut its price target on ‘hold’ rated Moncler to €50.0 from €55.0 and on ‘buy’ rated Zegna to $10.5 from $12.