AB Foods shares jump after Citi upgrade to 'buy'

5th Nov 2014 11:54

Citigroup has trimmed its profit forecasts for Associated British Foods due to an ongoing weak sugar performance, but has lifted its stance on the stock from 'neutral' to 'buy' on prospects for its fast-growing retail chain Primark.AB Foods said on Tuesday that adjusted profit before tax (PBT) in the year ended 13 September totalled £1.12bn, up 2% on last year and more or less in line with Citi's forecast.However, the bank has reduced its PBT estimate for the current financial year (FY) by £56m to £1.09bn, assuming no growth from last year due to declining profits in the struggling sugar division as prices continue to fall.Nevertheless, Citi painted an upbeat outlook for Primark which continues to pick up the slack: "Primark's international expansion programme remains very successful, a theme we expect to continue for many years to come."The bank said that Primark's current trading patterns are similar to that of H&M in 2001, and the business has the potential to replicate H&M's space growth since then of 12% per annum.Following the re-based FY15 sugar division profits limiting earnings per share to FY14 levels, it expects mid-teen group earnings growth to resume, driven by Primark.The bank has lifted its target price for the stock from 3,100p to 3,200p, helping push the shares 5.4% higher to 2,934p by 12:46 on Wednesday.