Burberry shares drop 2% as RBC cuts stock to 'sector-perform'

Burberry shares slid 2% to 1732p on Tuesday with traders attributing RBC Capital Markets’ move to cut its rating on the stock to ‘sector-perform’ from ‘outperform’.

RBC analysts said that as much as they like Burberry's digital story, recent negative pricing news-flow in China creates downside risks to Burberry's consensus forecasts if luxury prices are cut in China.

“Moreover, soft organic trends reported by several peers this month and lower foreign exchange tailwinds than its Continental peers suggest that upgrades to drive stock outperformance look less likely, hence our move to a sector perform rating,” said the broker.

Outperform often denotes ‘buy’ while ‘sector-perform’ often denotes ‘hold’ or ‘neutral’. RBC also reduced its target price on Burberry to 1900p from 2000p.

RBC added that Burberry stock will be weighed by negative sector pricing news in China and negative read-through from recent results from soft luxury peers.

“We see larger price gaps between Europe and China for Burberry when compared to Louis Vuitton and Cartier,” the broker pointed out.