Jefferies ups AB Foods to 'hold' after share price fall

Jefferies upgraded Primark owner Associated British Foods to ‘hold’ from ‘underperform’ and lifted the price target to 2,450p from 2,300p.

The rating upgrade follows a 12% drop in the share price since the bank downgraded the stock in September.

“With the upcoming finals (8 November) set to confirm a positive bias to earnings direction over the near term, and with the group (and Primark’s implicit) valuation at multi-year lows, we upgrade our recommendation.”

Jefferies said it estimates that at peak multiples in late 2015, investors were paying close to 40x forward price-to-earnings for Primark. That has now reduced to 23x, which the bank said may provide a measure of the opportunity for some. For Jefferies it is a rational normalisation of what had become overheated expectations on US prospects.

The bank said that while the US will contribute a longer-term additional growth avenue to Primark, the margin profile has also changed for good.

At 0915 BST, AB Foods shares were up 0.7% to 2,546p.