The FTSE 100 luxury designer’s investment case hinges on the potential turnaround, led by creative director Riccardo Tisci, accelerating brand growth and improving profitability.
The German bank noted that Burberry is not priced for a turnaround, so delivery would make the stock look very cheap, however momentum has not picked up yet without signs of an inflection point as seen with other brands implementing turnaround plans.
“If anything, consumer interest in Burberry looks to be fading,” analysts commented.
“While management has focused attention on solid ‘full-price’ sales growth, we note Burberry is the only brand in our analysis not to raise prices over the last year. This would support full-price sales given the relative value gap to peers is widening, but also indicates to us that Burberry does not have sufficient pricing power, which again would not indicate strengthening brand momentum, in our view.”
Nonetheless, the trenchcoat seller has an extensive store footprint “coupled with the best digital proposition in the sector”, which is an increasingly important channel.
And even if the brand turnaround proved unsuccessful, Berenberg believes Burberry is a credible takeover target given its low relative valuation and less prohibitive ownership structure, while offering best-in-class digital capabilities that could be attractive to a potential acquirer.
Shares added 1% to 1,733.5p on Tuesday late morning.