FX headwinds take shine off strong Q1 at Burberry, says Deutsche Bank

11th Jul 2014 10:09

Deutsche Bank has repeated its 'hold' stance on luxury brand Burberry after worsening currency headwinds "took the shine off" a first-quarter update, which showed strong sales momentum.The British high-end fashion group reported that retail comparable sales grew 12% in the first three months of the financial year, "significantly ahead of consensus expectations (+8%)", according to Deutsche Bank.However, the bank said: "Currencies are having an increasingly negative effect on reported profits, and we expect consensus forecasts [for the year to March 2015] to fall by 5%. We lower our own forecasts for profit before tax to £444m."Deutsche Bank said it now sees "limited upside" to its target price of 1,550p, with the stock trading at 18.5 times calendar-year 2015 estimated earnings, a small premium to the European luxury sector. The bank said: "Upside risks relate to further strengthening in sales momentum, perhaps boosted by Beauty. Share buybacks are possible in the next 12-24 months (circa £400m net cash). "Downside risks relate to execution in Japan, a further step-down in consumer confidence in key markets and a strengthening of sterling."The stock was down 0.5% at 1,457p, pulling back slightly after a decent rise the previous day.BC