SocGen downgrades AB Foods on valuation grounds

Societe Generale downgraded Associated British Foods to ‘hold’ from ‘buy’ on valuation grounds as the stock has hit its 3,300p price target.

The bank said it continues to value ABF using a sum-of-the-parts with Primark valued at 20x estimated 2016 earnings before interest, taxes, depreciation and amortisation, which is now a meaningful premium to peers H&M and Inditex.

SocGen said it continues to believe that Primark will compound with like-for-like growth averaging 2-3% per annum and double digit space growth, but said this is now fairly reflected in the valuation.

The bank said it was a little nervous about Primark’s US debut. Inevitably there will be lessons to learn as the Primark brand is not known in the US and it will take time to gain traction, it said.

“We continue to like the fundamental story but 33x price-to-earnings for 2017 EPS recovery and some risk in Primark US means that the risk-reward is more balanced from here.”

At 0940 BST, AB Foods shares were down 0.6% at 3,277p.