Broker snap: Investec upgrades Burberry back to 'buy'

19th Oct 2012 09:47

Shares in luxury fashion group Burberry were registering gains on Friday morning in London after Investec returned to its bullish stance on the stock and upgraded its rating from 'hold' to 'buy'.The broker said that the highlights of last week's first-half pre-close trading update were "a modest improvement in all three major regions at the end of the period" and a continued elevation in the 'luxury' nature of product sales.As for the latter, Burberry said that the penetration of Prorsum and London - the company's more 'high-end' brands - increased by six percentage points year-on-year to 49% of sales.Investec analyst Bethany Hocking said: "In our view, the ongoing elevation of the brand's luxury positioning is crucial, reducing exposure to aspirational luxury shoppers who are likely to suffer more in downturns."Burberry's interim results are due out on November 7th and Investec is expecting a pre-tax profit of £165m, slightly below the consensus forecast of £168m.However, with the broker reducing the discount applied to the discounted cash flow (DCF) valuation from 15% to 10%, it takes its target price for Burberry's shares up to 1,300p, from 1,140p.Hocking said: "The Burberry brand is far from broken, operational leverage should come through, and, whilst volatility will remain, we see long-term value here."By 10:21, shares were up 0.62% at 1,187.28p.BC