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RBC ups target price on 'glass half full' Burberry
While shareholders remain optimistic that new Burberry creative director Riccardo Tisci can return the label to its former glory, analysts at RBC Capital Markets see lower risk investments - and at similar valuations - elsewhere in the sector.
With retail like-for-like growth remaining below that of opex inflation, cost savings were protecting short-term profitability at Burberry's, the analysts said.
Investors might also be willing to let pass further pedestrian performance from the retailer as they wait for Tisci's first collection in February 2019, they mused.
Furthermore, RBC said returns on investment trends were still "encouraging".
Tisci, who put Givenchy back on the map in 2005, was seen as the key reason the market continued to view Burberry as a glass half full situation, but the analysts questioned whether that patience would hold out if the group continued to underperform throughout the first half of 2019.
However, RBC warned that Burberry needed to increase its fashion content to attract new young consumers but also needs to be mindful of the risk of losing core customers who currently buy its heritage offer.
It also saw "faster top/bottom-line growth with lower risks at similar valuations elsewhere in the sector."
Their assumptions for like-for-like growth in retail in 2019 and 2020 on the other hand were unchanged.
Together with improved wholesale guidance that led RBC to lift its target price on the shares from 1,600p to 1,750p, albeit while reiterating its 'underperform' recommendation on the fashion house's stock.