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STOCKS NEWS EUROPE-Burberry up after H1 proves better than feared

Thursday, 11 Oct 2012 | 4:20 AM ET

Shares in British luxury clothing manufacturer Burberry gain 7.9 percent as a revenue update beat battered market expectations after a profit warning last month, triggering a recommendation upgrade by Seymour Pierce.

Burberry is the biggest contributor to early FTSE 100 gains this morning, adding 1.370 net points to the blue-chip index, and traded its full-day volume average within the first hour of trading.

Commenting on the revenue update, Ed Woolfitt, head of trading at Galvan, says: "Not as bad as the profit warning would have had us believe."

"I think a classic case of over playing the negative ahead of the announcement so the announcements look better than it really is."

Burberry's share price lost 28 percent since the profit warning last month.

"While there is still uncertainty over the cost of bringing in-house the fragrance license and over the impact the global economic slowdown will have on luxury spending, we are reassured that demand has not fallen off a cliff and so believe the shares have been oversold," Seymour Pierce says in a note, upgrading the stock to "buy" from hold".

"We still consider Burberry a strong long term growth story with significant geographical and product mix opportunities."

Despite the slowdown in sales, revenues remain 6.8 percent above their 5-year historical average and its earnings quality score -- a gauge of the sustainability of earnings based on past performance -- of 76 out of 100 is better than French peer LVMH and inline with Germany's Hugo Boss , according to Thomson Reuters Starmine data.

Burberry's market implied five-year compound annual growth rate is also inline with peers at around 5 percent.

Reuters messaging rm://alistair.smout.thomsonreuters.com@reuters.net

Keywords: MARKETS EUROPE STOCKSNEWS