Berenberg upgrades AB Foods to 'buy'

Berenberg upgraded Primark owner Associated British Foods to ‘buy’ from ‘hold’ but cut the price target to 2,760p from 3,450p.

The bank noted shares have dropped more than 30% in the last three months and 20% in the last month alone, providing an entry point.

It argued that initially, fears were around trading momentum in the UK which was -1% at the first half due to the poor performance of the high street generally and unseasonable weather.

Berenberg said the company’s third-quarter update on 7 July is likely to confirm such fears and guidance may come under pressure.

“While the current macroeconomic uncertainty revolving around Brexit (including wild FX movements with GBP -10% versus the US dollar in the last week affecting Primark’s margins) does not help sentiment, we believe that with the shares now trading on 20x calendar 2017 P/E on our forecasts (27x average since 2014) this offers the best entry point in nearly three years.”

The bank said it still believes in the longer-term potential for the Primark rollout. It also said that sugar profits look set to take off again, having collapsed from £506m in 2012 to £43m in 2015 given near-term dynamics in global sugar prices.

At 1132 BST, AB Foods shares were up 7.5% to 2,527.00p.