marco polo quotes Burberry cut to neutral
Luxury fashion house Burberry (LON:BRBY) today lost the backing of analysts at Bank of America Merrill Lynch, who removed their recommendation on the stock.
Instead, Ashley Wallace and the team have opted for a rating and a target price of (previously deciding that the recent adverse currency movements and the impact of launching the Japanese business can no longer be ignored.
It will hit Burberry 2015 revenues by 3.5%, but the impact on EBIT (earnings before interest and tax) is much larger a mismatch between revenue currency and cost currency exposure hit it will take is around which works out at an 8 10% impact on EBIT.
Meanwhile, the Burberry licence in Japan will be brought back in mid 2015.
Japan is an untapped luxury market and could prove lucrative given the demand it has already seen for its products from Chinese shoppers.
However, the broker warns that the conversion from licence to retail/wholesale will dilute margins the EBIT margin would drop from 85% to 10% on Merrill estimates.
All this leads to a 4% downgrade to its earnings per share (EPS) forecasts for 2014, 11% for 2015 and an 8% downgrade for the year after.
we expect the underlying business to continue to outperform peers, our three year EBIT CAGR [compound annual growth rate] is now only 4% given our view of the significant FX and Japan headwind, said analyst Wallace.
The shares have lost 13% of their value since the company announced Angela Ahrendts was quitting as chief executive for a job at Apple.
They fell to the bottom of the FTSE 100 on Friday following the downgrade, trading 2.5% lower at
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