Burberry Group PLC’s (LON:BRBY) brand will eventually become more attractive after a repositioning to become more high-end but it will take some time for the changes to pay off, Kepler Cheuvreux said.
Kepler raised its rating on the stock to ‘hold’ from ‘reduce’ and raised its target price to 1,870p from 1,780p, saying it believes market expectations are “now more reasonable”.
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“Following the recent share price correction and higher-than-expected first-half earnings leading to an upwards revision of our forecasts, we are adjusting our target price from 1,870p to 1,780p and upgrading Burberry from Reduce to Hold,” the broker said.
“We believe that market expectations are now more reasonable, and investors who played a rapid recovery of the brand have now heard management comments that the turnaround of Burberry will take several seasons.”
In early November, Burberry said adjusted operating profits dipped to £178mln in the first half from £185mln last year, but this was slightly better than expected. Revenue rose 3% to £1.22bn, as expected.
Burberry has been trying to take the brand more upmarket under the direction of new chief designer Riccardo Tisci, who started this summer. The former Givenchy designer has redesigned the company’s logo and recently launched his first Burberry collection in London.
Kepler said it has “little doubt the brand will become more attractive”, but the question is when?
“We expect brand momentum to remain unsettled for several months and see only limited room for improvement, since it will take some time for the recent developments made by the company to pay off,” it said.
“We believe the current valuation now reflects the unsettled brand momentum for the next few months.”
Shares in Burberry rose 0.6% to 1,830p in midday trading.