Broker tips: Burberry, XP Power, NatWest

(Sharecast News) - RBC Capital Markets cut its price target on Burberry to 1,700.0p from 1,900.0p on Friday after the luxury fashion brand's sales warning a day earlier. The Canadian bank, which rates the shares at 'sector perform', said that following Burberry's interim results and the guidance cut, it had opted to lower its full-year revenue/underlying earnings estimates by 4%/12% and 7%/15% for 2025.

"The magnitude of top-line deceleration in 2Q versus 1Q is material, largely due to a Chinese cluster we believe," RBC said. "With exit rates in Oct/Nov likely still pressured, we believe 3Q is unlikely to deliver a significant or sustainable rebound in momentum."

RBC said it likes what Burberry is doing with product and range architecture. However, the timing is not ideal given softening luxury demand trends and RBC sees gross margin risk in 2H24E.

It continues to prefer 'outperform' rated Gucci owner Kering for "valuation/turnaround idea".

Analysts at Berenberg raised their target price on power supply solutions provider XP Power from 1,400.0p to 1,600.0p on Friday after having upgraded the group to 'buy' last month.

Berenberg said that after upgrading the stock following its 2 October profit warning and an expected equity raise, it was now out the other side of the event, with the company having raised roughly £45.0m earlier in November. While not quite the form or size of the approximately £80.0m rights issue it had anticipated, Berenberg noted XP's shares were still up by roughly 25% since 25 October.

"Now, the balance sheet has been repaired and the valuation continues to be attractive when we consider self-help measures and our view of XPP's status as a long-term winner," said Berenberg.

While shorter-term markets remain challenged, Berenberg thinks the stock's risk/reward scenario has become "comfortably skewed" to the upside for investors.

"XPP trades on 12.8x FY24 P/E and 10.1x FY25 P/E. Previously, we have commented on potential pressures on FY24 trading given uncertainty around the semiconductor cycle, but new clarity on self-help measures offers further downside protection on our already trough-margin forecasts," said the analysts.

Barclays analysts have raised their rating for NatWest from 'equal weight' to 'overweight', saying it expects a big rebound in profits.

"We upgrade NatWest on signs of slowing deposit migration, now see the bank as best placed to overcome term-funding risks, and look for a substantial rebound in NIM and earnings, ahead of consensus, driven by a best-in-class structural hedge tailwind," Barclays said.

On 27 October, NatWest reported a third-quarter net interest income - the amount it earns in interest on loans compared to how much it pays in interest on deposits - of £123.0m in the three months to 30 September, up from £43.0m in the second quarter and £33.0m in the third quarter of 2022. The bank reported a quarterly loss of £57.0m, up from a loss of £133.0m the year before.

"NatWest is now our preferred pick among UK banks," Barclays said, as it raised its target price for the stock from 315.0p to 330.0p.