Broker snap: Credit Suisse cuts AB Foods to 'neutral'

16th Apr 2013 10:23

The re-rating at Associated British Foods (ABF) is now complete, according to Credit Suisse which downgraded its rating for the stock from 'outperform' to 'neutral' on Tuesday.The broker however has hiked its target price from 1,650p to 1,850p for the food ingredients and Primark owner, in line with current market prices. The stock now trades at 17.7 times next year's (ending September 2014) earnings after having doubled over the past two years, with a large reason being Primark, Credit Suisse said. The 10-year average forward price-to-earnings ratio is 14."It is very easy to get carried away with ABF estimates, in our view," said analyst Charlie Mills."Add up Primark growth, margins in Grocery getting to 10%, returns on recent investments and reversing Chinese/Australian losses, and forecasts can get out of hand. But we think the nature of ABF is 'swings and roundabouts' - it would be a truly exceptional few years were everything to go right," Mills said.He said that both positives and negatives can be seen in the immediate outlook: EU sugar prices are expected to edge back; Chinese sugar losses are increasing; Ingredients remain challenging; Primark profit growth is strong but maintaining recent growth rates will be difficult."The long-term story remains very good at ABF, but the shares look due a pause for breath. We revert to 'neutral'."The stock was down 2.74% at 1,813p by 10:29 on Tuesday.BC