Nomura still sees upside at Burberry despite lower forecasts

20th May 2015 09:45

Nomura has lowered its forecasts for Burberry due to the impact of sterling strength on the fashion house's bottom line, though a 'buy' recommendation was maintained on its "solid underlying strategy".Annual results from Burberry were in line with expectations with pre-tax profit down 1% on a reported basis at £456m, though this would have represented a 7% improvement in constant-currency terms.Despite results meeting forecasts, the company's share price slumped on Wednesday after the group said that the FX tailwind for the current financial year ending March 2016 has been reduced from £50m to £10m given recent sterling strength. Meanwhile, the retail/wholesale margin is forecast to be flat, compared with Nomura's previous prediction of a 40 basis-point improvement."These FX benefits and ongoing cost control are set to be fully offset at current FX rates by geographic and channel mix," Nomura said.Accordingly, the broker has lowered its pre-tax profit forecast for this year from £495m to £472m.Nevertheless, Nomura said it still sees upside to the stock, recommending shareholders to use any short-term weakness in the stock "as an opportunity"."However, we note a cautious outlook statement and pricing decisions, which we will watch carefully for short-term read-across," it said.The broker maintained a 1,990p target price for the shares, which were down 4.5% at 1,727.56p by 10:12.