Credit Suisse ups Burberry to 'outperform', expresses confidence in new management

Luxury fashion brand Burberry got a boost as Credit Suisse upped its rating on the stock to 'outperform' from 'neutral' and lifted the price target to 2,000p from 1,650, saying it was its "preferred brand turnaround story".

The bank said that having been negative on the stock for most of the last 2.5 years due to brand fatigue, growth slowdown and margin pressure, it now reckons new management can successfully execute a brand turnaround strategy over the next two years.

CS pointed out that Burberry's management team has lacked people with strong retail expertise since Angela Ahrendts left in 2014. But bringing in Marco Gobbetti - who spent 12 years art industry leader LVMH and 25 years as CEO of luxury brands - should help fill that gap.

The bank said newness and accessories will be key to reviving growth and it expects these to be the focus at the first-half results in November.

"Given its heritage with more than 50% of group sales from apparel, Burberry is well placed to capitalise on the need for newness in luxury," CS said, adding that having Christopher Bailey back full time on design should boost growth of the seasonal collections.

Credit Suisse said it expects margins to rebound by 250 basis points over FY18-20, helped by improving like-for-like sales and greater confidence about the company's plan of at least £100m annualised cost savings by FY19.

"Coupled with share buybacks, we model +10% earnings per share growth per annum over FY17-20e rising to mid-teens over FY18-20e."

At 0850 BST, the shares were up 1% to 1,780p.