Broker snap: Nomura cuts estimates for Burberry on FX headwinds

8th Jan 2014 09:09

Nomura has trimmed its forecasts for High End luxury brand Burberry ahead of its trading update next week, saying that currency headwinds are likely to weigh on results in the second half.The broker maintained a 'neutral' rating and 1,630p target price for the stock on Wednesday.Burberry will update on third-quarter trading on January 15th and is expected to report a 7.1% increase in like-for-like sales in the third quarter, according to Nomura. This represents a significant slowdown from the 13% growth registered in the first half."Despite a continued focus on conversion and seasonal initiatives, comparatives increase for the period and the macro trading environment remains volatile as seen across the luxury sector," the broker said."We therefore forecast a slowdown to +7.1% LFL growth in 3Q, in line with our 2H estimate."Nomura said that recent foreign exchange (FX) volatility will lead to a 4.2% headwind in the fourth quarter, mainly due to the recent strength of sterling compared with last year. If rates stay stable, this headwind will continue into next year, it said.The broker now expects Burberry to deliver a pre-tax profit of £464m for the year ending March 2014 and £515m for the year ending March 2015, down £6m and £16m from previous estimates, respectively."Burberry continues to have flexibility in its cost base from its pay-as-you-go approach, which may help to offset FX pressures further; however, with ongoing investment in the beauty business, and an assumed reduction in cost growth in 2H driving our FY2014 forecasts, we take a cautious approach ahead of an uncertain year for the luxury goods sector."The stock was down just 0.13% at 1,478.1p on Wednesday morning.BC