Broker snap: AB Foods to shrug off cotton prices

23rd Feb 2011 11:35

Nomura keeps its positive stance on Associated British Foods, saying that near-term cost pressures at its Primark division now appear discounted, and the business is well-placed to expand over the medium term.The broker highlights the near-term downgrade risk at AB Foods' Primark division - with raw cotton costs rising - and cuts the group's 2012 earnings before interest and tax estimate by 4% to reflect this.However, with the Primark and British Sugar owner trading 11% down in the year-to-date, "this now looks more than discounted," says analyst Alex Smith."Looking further out, we believe Primark remains an underappreciated growth story, with potential to double to treble in size over the next 5-10 years," adds Smith.With trading expected to be 'in line' with profit growth ahead of last year, the Japanese broker confirms a 'buy' and target price of 1,035p.