LONDON (ShareCast) - According to Merchant Securities, the trading update from luxury fashion firm Mulberry was 'slightly disappointing', which seems an understatement given the market's reaction.

The shares got a right handbagging on Thursday after reporting revenues slightly behind consensus.

Merchant Securities, which made Mulberry one of its "Tips for 2012", says there are still plenty of places left in the world where Mulberry can repeat the success it has enjoyed in the UK, USA and Korea, while the increase in manufacturing capacity should enable further expansion.

"The stock appears expensive on 2013 PER [price/earnings ratio] of 35.0x, against the luxury sector on 16.1x," Merchant Securities analyst Amisha Chohan notes.

"We believe that a premium is warranted given the scalable business model and attractive growth opportunities for the medium and long term," the analyst added.

Having said that, the shares have risen by more than a third since the broker named it as one of its picks for 2012, encouraging Merchant Securities to downgrade the stock to a hold.

Of course, given the shares tanked by more than fifth on the day of the trading update, that view may change very quickly.

JH

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