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04 Aug 2021
Find your thrill on Burberry hill
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Find your thrill on Burberry hill
Burberry Group plc (BRBY:LON) | 1,220 -128.2 (-0.9%) | Mkt Cap: 4,376m
- Published:
04 Aug 2021 -
Author:
Grippo Melania MG | Lucarelli Guido GL | Belge Antoine AB -
Pages:
18
A solid performance and well above expectations
On 16 July, Burberry reported Retail comps up 90% y/y in 1Q ending June, a sequential acceleration on a 2-year stack basis to +1% (from -5% in Q4 ending Mar 21). Some on the buy side might have anticipated c90%, but company-compiled (70%) and VA consensus (80%) were well below.
Exiting markdowns a positive step
The company calculates a LDD headwind from exiting markdowns, but we would instead stress that the absence of markdowns (together with the HSD % price increase on most women''s leather goods on 3 May) will have a positive impact on GM and brand image. In addition, Burberry raised its H1 ending Sep 21 Wholesale guidance to +60% (from +50%), which is a positive sign.
Why still an Outperform after the CEO departure announcement?
Prior to the CEO departure announcement on 28 June, our positive stance on Burberry was based on stock ''dislocation'', i.e. significant share underperformance vs the sector, even though only LVMH, Hermes and Richemont did significantly better on a 2-year stack in calendar 1Q21. Since June, Burberry shares have lost 8% in spite of the sales beat. We find this too severe given in our view the valuation already reflected market skepticism of its CEO and Artistic Director. In addition, given MandA questions are asked in most of our discussions with investors, it is worth noting there is no speculative premium in the Burberry share price in spite of it being the only 100% free float: most other potential takeover targets are family controlled and thus more difficult to acquire.
Trading on a c. 30% discount to peers - we are Outperform
As we stressed in our 2 June Report, facts and perception don''t always match. Whilst all luxury shares are now above pre-Covid 19 levels, Burberry is still 11% below its Jan 2020 peak. On our estimates, the stock trades on 20.2x cal. 2022 PER, a c30% discount to peers. Yet in the last decade, BRBY traded at a premium until the beginning...