Broker snap: Cut price Burberry a bargain

1st Jul 2010 12:04

Nomura Securities is neutral on the luxury sector but has picked upmarket fashion label Burberry as a 'trading buy' this month.Nomura said Burberry shares have enjoyed "one of the largest re-ratings in the luxury sector in the last year, driven by the biggest price increase in the peer group that has more than compensated for relatively higher earnings revisions." The stock trades at a premium to historic price/earnings multiples but Nomura analyst Allegra Perry thinks this is deserved "because of its significantly higher operating margin potential and scope to continue increasing control over operations, particularly in Japan where we believe the group could unlock significant hidden value."The broker has nudged up its earnings per share (EPS) estimates by around 3% for fiscal 2011 and by 7% for fiscal 2012, reflecting greater confidence on wholesale and gross margins. The price target has been cranked up to 818p from 732p, to take into account a ratcheting up of the expected earnings multiple for the stock from 18 to 18.5.That means the price target is now below the current share price following the stock's recent pull-back, which represents a short term buying opportunity in Perry's view.