Broker snap: Near-term excitement absent at Burberry

17th Nov 2010 12:56

Despite Burberry's first half results beating forecasts, Nomura has maintained its neutral stance on the stock, not seeing much in the near term to excite investors.Several elements of the fashion retailer's business have given "confidence in the opportunity for continued profit growth", says the broker, including increasing monthly flow of goods, digital media brand development and strong leather goods and outwear sales, but growth in the second half of the year is expected to be more modest than in the first half while full year cost guidance has been maintained.Nomura believes the luxury fashion label has the potential for increased retail productivity in newly acquired Chinese stores, as well as through its entry in to India and Brazil.The broker notes that the 43% increase in first half dividend reflected confidence in the outlook, with free cash flow set to improve in 2011 in the absence of further acquisitions.Also, operations in China will represent a "strong return on investment" - according to analyst Fraser Ramzan - if it can deliver earnings before interest and tax of £20m in fiscal year 2011/12, relative to the £65m acquisition.While expecting continuing momentum in the medium term, the broker holds the target price of 1,020p and its 'neutral' rating. Full year profit before tax forecasts have been raised by £5m.