Berenberg downgrades AB Foods on lack of short-term catalysts

It noted that since it upgraded the stock to ‘buy’ in February, the share price has increased by 10% while consensus forecasts for 2016 earnings per share have fallen 15% due to a mix of FX translation and impact on margins in the short term for Primark.

Berenberg said it remained confident about the group’s long-term potential, in particular from the roll-out of the Primark concept across Europe, which it reckons is worth 2,750p per share standalone with further upside potential in the US.

However, with just 1% growth forecast for 2016, Berenberg said it was hard to see a catalyst for a stock trading on 31.5x calendar 2016 price-to-earnings that is still subject to volatility in commodities, with excitement over US Primark opening priced in.

“While we do not doubt ABF’s quality, the net downgrades (from commodity exposures and FX) have been frustrating and it will be another 12 months at least until we see the full benefits of solid double-digit EPS growth (fuelled by Primark) come through.”

At 0945 BST, AB Foods shares were down 0.5% at 3,290p.