Broker snap: Merchant downgrades Burberry but stays positive

17th Apr 2012 09:41

Merchant Securities has cut its rating for luxury brand Burberry from buy to hold on valuation grounds, but has maintained its positive stance on the group.The group said this morning that total underlying revenue in the six months to March 31st increased by 18% to £1,027m with buoyant Retail sales partially offset by weakness in Wholesale and Licensing.Retail sales now account for 72% of total sales, up from a 64% contribution in the first half. Merchant Securities says that the shift from Wholesale to Retail will provider higher cash profitability and margins."We continue to believe that Burberry is a beneficiary of growing demand from global luxury travellers, especially in Asia, Middle East and Russia, which are more favourable than the domestic European luxury market, which appear subdued," said analyst Amisha Chohan.However, with the stock trading at a 19% premium to the luxury sector - "justified by the more favourable growth profile of the business" - the broker now believes that the stock is fairly priced, hence the downgrade.The update wasn't taken too kindly by the market this morning, with shares down over 4% early on.BC