Welcome to the new morningstar.co.uk! Learn more about the changes and how our new features help your investing success.

Burberry Upgraded by Analysts

Shares in the luxury clothes brand are upgraded, but Morningstar analysts believe they are still overvalued

Jelena Sokolova 29 August, 2018 | 2:48PM

Burberry Store

Morningstar equity analysts are increasing their fair value estimate for shares in luxury clothes brand Burberry (BRBY) to £17.90, below the current share price of around £23 a share, to reflect positive currency movements. The shares have a two-star rating, which means they are currently overvalued.

We now expect largely flat sales and profits in 2019 and 2020, in line with management guidance and driven by improvements to the distribution channel, which we see as the correct – although painful – step. We expect a return to growth thereafter to a slightly above-industry rate, driven by same-store and online sales and supported by product innovation across categories.

In the longer term, Burberry could benefit from growth in middle-class customers across the globe, as well as from demand from existing middle-class customers, boosted by growth in their incomes. Although adding new wealth at a slower pace than in the past, China presents a major opportunity through increasing consumption share of GDP and pent-up demand from the second middle-class generation.

We expect better leverage in selling, general, and administrative expense in the longer term, as retail expansion slows and growth in demand results in higher same-store sales. Some overlapping costs would also be taken out, helping the bottom line.

We expect margins to recover to over 20% over the five-year time horizon, versus 17% currently, which is still below the high 20s for some more focused peers. We expect Burberry to increase its top line growth at 3.9% over our 10-year forecast period, with the majority of growth coming from same-store sales.

Our five-year forecast assumes slightly positive currency contribution over a five-year period, based on the British pound forward curve.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Burberry Group PLC2,000.00 GBX0.33

About Author

Jelena Sokolova  is an equity analyst for Morningstar

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites