Luxury fashion's push into online "can change the traditional luxury distribution model", Goldman Sachs thinks, upgrading its recommendation on Burberry's shares
as a result.
'E-Concessions' are set to accelerate growth for Burberry and its peers, the investment bank said on Wednesday, modernising the sales channel mix, offering consumers a wide choice and open up luxury's addressable market to a younger consumer base.
"The economics work," Goldman says, adding sales at a higher incremental margin, leading to a forecast for new channel opportunities and a cumulative sales benefit of 23bn for the wider luxury sector by 2025, with a bias seen towards 'soft luxury'.
With online sales forecast to rise from just 7% today to 16% by 2025, "our estimates may be conservative", analysts said.
Distribution is expected to dominate the sector's strategic updates over the next 12-18 months, with companies more willing than first envisaged to embrace new distribution agreements as e-concessions offer brands the ability to accelerate retail operations, increase traffic and help control the grey market.
"The key risk is greater competition, but this will also accelerate the need to participate, in our view."
Burberry was upgraded to 'buy' from 'neutral' and added to Goldman's 'conviction list' with a new 12-month price target of 2,395p from 1,797p, implying 43% upside potential.
The price target is primarily hiked on higher estimates, with 70% reflecting weighting from a discounted cash flow methodology and 30% from a M&A takeout value.
Goldman also pointed investors towards its favourite small and mid-cap shares where it sees "the most compelling upside", with its loose definition of 'small' including Just Eat and Centamin.
Scope for an upside surprise on cash returns is seen at Egyptian gold miner Centamin, the "best positioned gold company in our coverage" based on the bullish view spot gold prices suggest "significant" free cash flow yields to come, "supported by a favourable position on the global gold cost curve".
B2B exhibitions, business intelligence and academic publishing specialist Informa "offers among the best value in the business publishers space, with concerns about the slowdown in academic publishing, and the potential merger with UBM, overdone".
Online takeaway aggregator Just Eat is seen as a "winner takes most" industry structure, "where scale drives content, content drives traffic, and traffic drives further scale", and while recent investments in delivery have weighed on the shares, "we see Just Eat's decision to invest in delivery as the correct one", with JE also a potential strategic M&A target.
Continental top picks included Schibsted, where analysts see self-help as a clear source of upside potential, and Philips Lighting for potential to bridge the cost gap with peers.