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Ready to bounce
Burberry Group plc (BRBY:LON) | 0 0 0.7% | Mkt Cap: 4,151m
- Published:
11 Feb 2022 -
Author:
Grippo Melania MG | Belge Antoine AB -
Pages:
18
What''s new year to date?
The 19 January 3Q (Oct-Dec 21) sales update in itself was not much of an event: technically a small beat, the 7% Retail comp (consensus 6%) was not impressive relative to peers unless someone was ready to only look at the full-price sales sequential acceleration. The key points for us were: Burberry (i) raising its FY Mar 22 EBIT guidance, and (ii) confirming its medium-term sales and EBIT guidance (high single digit top line growth and meaningful margin accretion at constant FX) ahead of the arrival of its new CEO Jonathan Akeroyd mid-March (who will in our view endorse these objectives).
Why the stock could finally work in 2022
Beyond the valuation angle and estimates going up rather than down, we see several reasons to like the stock. 4Q (Jan-Mar 22) should be the first quarter no longer impacted by the ''markdown effect'' and thus see a sequential acceleration. New CEO Jonathan Akeroyd - joining after a strong track record at Versace and Alexander McQueen - will find Burberry in better shape than a few years ago, notably from a ''platform'' perspective (substantial distribution upgrade, gross margin improvement driven by less markdowns, higher investment levels fuelled by cost savings). From a brand heat perspective, compared to 2017, i.e. just before Riccardo Tisci joined as Artistic Director in 2018, we believe Burberry has made progress with US consumers, not much with Europeans and lost ground in China (more due to the Cotton issue than product though). Beyond what Jonathan Akeroyd will bring in terms of strategic vision, this mixed 4yr-evolution will in our view require some tweaks/changes in terms of design.
TP unchanged at 2,650p; reiterate Outperform
Our TP is unchanged at 2,650p (FY 22-24e EPS raised by 7%, 5% and 2%, with BNPP Exane now 3%, 5% and 10% above consensus). Burberry is trading at c16.7x calendar 2023 PER and the share price is 17% below pre-Covid level. There is no takeover premium in the...