Burberry Group PLC’s (LON:BRBY) share price is now more realistic following a steep fall, HSBC said as it upgraded the stock.
HSBC raised its rating on the luxury fashion company to ‘hold’ from ‘reduce’ but cut its target price to 1,950p from 2,100p. The bank said it continues to believe Burberry’s decision to take the brand more upmarket is both “brave and risky.”
Burberry is trying to turn itself into a super-luxury brand, like Gucci and Dior, which have higher prices and profit margins.
“The management's vision and the new designer's credentials are worthy of enthusiasm and on the positive side, Chinese consumers seem to have a perception of the brand which is very positive, including in the all-important handbag category,” HSBC said.
“On the flipside, we are also wary that there could be some hiccups along the way.”
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But following a sharp de-rating of the sector and Burberry’s shares, HSBC believes there is a better balance between risk and reward for the stock. The bank noted that Burberry’s stock is now 29% below its year high.
“We now believe shares are reflective of a more realistic scenario,” it said.
In morning trading, shares were little changed at 1,707p.