Burberry gets Credit Suisse wicked

Thursday, 14 July 2011

Credit Suisse has raised its target price on Burberry to 1,420p from 1,310 following yesterday’s trading update. However, the Swiss bank thinks that the way to maintain strong sales growth as per the last year will demand further investment. Consequently, the broker keeps its “neutral” recommendation on the luxury fashion chain.

”A lot of reinvestment is required to support the current exceptional growth levels (above 30%): this means significantly higher opex (e.g. customer service, planning, warehousing, etc), higher depreciation, extra costs with flagship store projects, etc,” Credit Suisse notes.

Yet the broker was very impressed with the strong sales Burberry posted and thinks that growth in China will help it maintain its momentum. However, a luxury brand such as Burberry has to plough in a lot of money to maintain its appeal. “This is why margin guidance remains unchanged.” Outlining its “investment thesis”, Credit Suisse notes: “Burberry shares are underpinned by very strong top line momentum and perceived corporate activity appeal, but investment step-up should cap margins in the short term and its premium valuation to peers has actually widened to new all-time highs, keeping us Neutral on the stock.”


In a rather troubled day for the company, shareholders controlling more than 10% of luxury fashion house Burberry have failed to back the company’s executive pay policies, which included giving shares worth nearly £5.8 million to chief executive Angela Ahrendts last year.

Elsewhere, Prada not only broke the ice for an important number of blue-chip companies willing to float in Hong Kong, but also topped the FashionUnited Top 100 Index´s 5 winners’ group with a daily gain of 4.98%. Asos, that over doubled its sales abroad in the last twelve months, also posted gains by the end of the day, as well as fellow British French Connection and Ted Baker. Surprise winner was House of Pearls Fashion Limited, which closed 3.49% over its previous day´s close.

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