Broker snap: Credit Suisse bullish on Burberry

4th Jul 2012 10:42

Credit Suisse expects a slowdown in organic sales growth in the European luxury goods sector but says it favours British firm Burberry for its brand momentum and self-help growth potential.The broker says that the uncertainty over the slowdown in Chinese luxury consumption continues to dominate debates in the industry. The bear argument is that luxury demand in Mainland China has been affected by a slowing economy, while the bull arguments remains that purchases from Chinese travellers abroad is still fairly robust.For the industry as a whole, Credit Suisse thinks that organic sales growth will slow from 15% in 2011 to 10% this year (with Asian growth slowing from 31% to 16%) couple with "muted" margin expectations."This implies a significant slowdown baked in 2H12 reflecting a worsening macro backdrop and the lagging nature of the wholesale channel. Note that a weakening euro provides an added earnings buffer."As for Burberry, it is the broker's preferred stock under its coverage in the short term. A recent survey of buyers and merchandisers suggests that Burberry's brand elevation has continued as it "is now perceived closer to the top non-apparel luxury names and above most global fashion apparel peers, particularly in Asia-Pacific.""Moreover, Burberry looks better equipped than ever to navigate through an uncertain environment with more retail and more balanced geographic mix, it has fewer legacy issues to deal with than in the past and should soon reap the full benefits of the gradual implementation of SAP."The broker has maintained an 'outperform' rating and 1,650p target price on the stock.The stock, which went ex-dividend today, was trading flat at 1,330p by mid-morning.BC