HSBC cut its price target on Burberry on Tuesday but lifted it for Watches of Switzerland as it took a look at the European luxury goods sector.
The bank slashed its price target on ‘hold’ rated Burberry to 1,750p from 2,200p. It noted that the repositioning of the brand is underway with the products from the new designer having started to reach the shelves in September 2023.
However, HSBC said the pricing of the new collection – 20% higher – combined with the general slowdown of the luxury market increasing polarisation (consumers favouring the more established luxury brands) lead it to question the efficiency of the turnaround.
“Even if management maintained its long-term target, the profit warning for FY23/24 announced in November is not reassuring,” the bank said.
It added that while the valuation may seem attractive, visibility is too low.
HSBC lifted its price target on ‘buy’ rated Watches of Switzerland to 759p from 630p.
“The recent long-range plan came above market expectations and makes the case that the business model is more relevant than what many investors think,” it said. “With an increased focus on jewellery, pre-owned and non-Rolex M&A, WOS is setting up hedging mechanisms to diversify away from Rolex, in our view.”
While it still believes that the long-term consequences of the Rolex/Bucherer deal are transformational for the luxury watch industry, HSBC said the short term should be supported by a strong pipeline of more than 20 projects over the next three years.
“Between these two extremes, we think the current share price offers a compelling valuation for a company likely delivering mid-teens earnings growth and mid-20s return on capital employed.”
Rolex announced in August that it was buying Bucherer, sending shares in Watches of Switzerland tumbling.