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Broker tips: Burberry, Coca-Cola HBC

Tue 21 May 2019 16:22 | A A A

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(Sharecast News) - Bernstein upped its stance on shares of luxury brand Burberry to 'market perform' from 'underperform' on Tuesday, saying it sees a more balanced risk/reward following the drop in the share price last week after its full-year results.

It cited three reasons why Burberry could improve top-line growth performance in its stores going forward.

"a) The new Riccardo Tisci collection will come to the stores over the next few quarters; b) senior management is reporting very strong consumer traction of the new styles introduced; c) 80 stores will be in the renewed format by the end of FY20E, representing circa 50% of sales."

Bernstein, which left its price target at 1,780p, said self-help stories such as Burberry continue to be exposed to a "yo-yo" risk, as they rise on investors "wanting to believe" and fall on less-than-exciting updates.

"Therefore we see value in being realistic, tactical, and open-minded," it said, adding that it will keep its "eyes open and ears on the ground" to confirm brand momentum down the road, and act accordingly.

In its preliminary results last week, Burberry posted flat underlying profit as cost cuts offset a drop in revenue. Adjusted operating profit for the year to the end of March fell 6% to £438m but excluding currency movements profit was flat.

Revenue at constant exchange rates fell 1% to £2.72bn and operating costs fell 1% to £1.42bn, while pre-tax profit rose 7% to £441m.

Analysts at Deutsche Bank believe that Monday's drop in bottling company Coca-Cola HBC's shares in reaction to the news that The Coca-Cola Company would keep its majority stake in Coca-Cola Beverages Africa "for the foreseeable future" was overdone.

The Coca-Cola company revealed on Monday that, having had discussions with several potential partners for CCBA, it intends to retain its majority stake in the bottler for the foreseeable future.

The German broker reckons the share price reaction to the news, with CCH ending the day as the biggest faller on the FTSE 250 on Monday, was overdone.

Deutsche believes that given the attractions of the standalone investment case, and the fact that a CCBA deal "seemed unlikely" on a six-to-twelve month view anyway and that it also didn't rule out The Coca-Cola Company refranchising CCBA at some point in the future, the shares overreacted on the news.

"We believe the shares have overreacted on the news, with possibly some short term 'event-money' coming out of the stock, and we would take this as a buying opportunity," said Deutsche.

Deutsche stood by its 'buy' rating and 3,200p target price for CCH.

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