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Positive momentum and self-help potential reasons to bag trench coats seller
Thursday 13 Oct 2016 Author: James Crux

Luxury goods leader Burberry (BRBY) should maintain its share price momentum as it awaits the arrival of new chief executive Marco Gobbetti in 2017, in our opinion.

Boasting a balance sheet robust enough to withstand prevailing industry storms, the retailer retains a fabulous brand which confers pricing power and underpins Burberry’s high margins and robust cash flow generation.

Big News - BURBERRY - Oct 16

Shares in the heritage British brand, famed for its iconic equestrian knight logo and Burberry check trademarks as well as its signature trench coats, have rallied hard since the vote for Brexit. Burberry benefits from sterling weakness.

Yet the shares remain some way from the £19.08 levels reached in February 2015 and Burberry plans to reinvigorate sales and achieve at least £100m of annual savings by 2019.

Yes, the luxury goods market remains tough with slowing demand from travelling customers and Chinese spend globally. The iconic outerwear seller reported (13 Jul) a 3% drop in first quarter like-for-like sales. But consumers will continue to be attracted to the right brands and Burberry’s barriers to entry remain exceptionally high.

Burberry, which has taken full control (1 Aug) of its retail business in China, has £660m of year-end net cash, while a £150m buyback programme should continue to support the share price. The arrival of luxury goods veteran Gobbetti, with Christopher Bailey demoted to chief creative officer, offers a catalyst to drive growth in the years ahead. (JC)

We’re positive on Burberry at £15.17.

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