Burberry Group PLC (LSE:BRBY)’s share have been in the doldrums for nigh on 19 months now, but the prospect of a takeover bid from Moncler has piqued the interest of analysts at RBC Capital Markets.
Though only a rumour, there are clear synergies between the two businesses, RBC highlighted.
Specifically, newly appointed chief executive Joshua Schulman’s focus on outerwear has underscored the logic of a takeover from £1,000-plus puffer jacket purveyors Moncler.
“We agree with Burberry's approach to focus on outerwear,” said RBC analysts, who are awaiting further insights on the strategy in next week’s half-year results.
They stated: “Burberry's patchy product strategy track record with poorly-received forays into leather goods rather than focusing on its core outerwear heritage appears to finally be on a course correction path judging by recent fashion shows and industry comments under new CEO Joshua Schulman.
“This makes the proposition more attractive for Moncler, as it is a sector leader in outerwear (€1.9bn revenues, 75% revenue mix), whilst Burberry's outerwear business potentially has room for further growth.”
But it’s Burberry’s severely depressed market valuation that investors should hone in on.
Following a year and a half of value destruction, Burberry is trading at just a 1.2 times forward enterprise value to sales (EV/sales) compared to a luxury sector average of 3.5 times.
This makes any potential offer for Burberry “relatively opportunistic”, said RBC, but also hard for Burberry shareholders to refuse.
“From a Burberry shareholder perspective, we believe any offer at a premium above 30% would be considered by the board, particularly if it was from a peer with a strong execution track record in outerwear,” said RBC.
Amid the rumours and risk-reward adjustments, RBC has upgraded Burberry from ‘sector perform’ to ‘outperform’ with a share price ungraded from 650p to 900p.