Burberry shares (BRBY) are ‘good value,’ says hedge fund manager
Luxury retailer Burberry ‘s shares present an attractive investment opportunity after the company revealed a new turnaround strategy, according to hedge fund manager David Neuhauser. The London-listed fashion house told investors earlier this month that it will refocus on heritage designs and statement pieces as part of sweeping revamp plans to revive its ailing fortunes. Shares jumped over 22% on the announcement, logging their biggest-ever intraday gain, and ended the day up 18.7%. The stock, which is also traded in the U.S. and Germany, remains down around 40% year-to-date, however. BRBY-GB 1Y mountain Neuhauser, managing director and founder of Livermore Partners , believes that the British brand’s lackluster stock performance this year — due in part to depressed demand in the global luxury market —had created a compelling entry point for investors. “I think in the short run, you’re going to see luxury fall into the value bucket,” Neuhauser told CNBC’s Street Signs Europe Tuesday. “As the shares were so beaten down, so blown down, it created a really good opportunity.” Neuhauser said Livermore holds a “fairly nominal” position in Burberry after previously profiting by 40%-50% following Burberry’s multi-year rally in 2016. His bullish view comes amid a challenging period for luxury retailers, particularly in Asia, where consumer spending has slowed considerably. Burberry has been grappling with reduced Chinese tourist spending and broader economic uncertainties affecting its key markets – but they’re not the sole factors pushing down the share price. “The significant sales pressure coming from the Chinese consumer (avg ~30% of sales) since [the fourth quarter] 2023, as well as varying degree of sales exposure to the cluster among the companies, in our view clouds the underlying picture in the sector,” said Zuzanna Pusz, head of European luxury goods at UBS in a note to clients. UBS said Burberry was the only luxury retailer not to report “weak organic sales growth” in the latest quarter. The company beat expectations in like-for-like sales, where others failed. The Swiss investment bank raised its price target for Burberry and now expects the stock to rise by 14% over the next 12 months. “Burberry Forward” The brand’s new strategy – “Burberry Forward” – was unveiled alongside its interim results last week by its new chief executive Joshua Schulman. “Burberry has plenty of challenges ahead, but it is taking sensible actions to stabilise the business – this includes a new cost savings program and addressing its excessive inventory problem,” said Stifel’s analyst Rogerio Fujimori in a note to clients. However, Deutsche Bank analyst Adam Cochrane noted that “the share price reaction reflected the combination of a sequential improvement in [second quarter constant currency sales], some comfort regarding the liquidity requirements of the turnaround, an appreciation of the new strategy, and a degree of short position covering.” “I think Burberry has a good turnaround in place with a new CEO,” Neuhauser added, while cautioning that the recovery might take longer than expected. “I think over some time, a good turnaround by Burberry, with strong leadership, could really see the stock price increase. He also suggested the possibility of merger and acquisition activity, though this would be a longer-term consideration. “I think in the short-run there’s good value,” he added. The median price target of all equity analysts polled by FactSet points to a 5% downside risk for the stock. UBS, Stifel and Deutsche Bank raised their price targets last week. — CNBC’s Karen Gilchrist contributed reporting.
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