Broker snap: Good news priced in at AB Foods, says Canaccord Genuity

25th Feb 2013 10:54

The good news is already priced in at food producer and Primark owner Associated British Foods (ABF), according to Canaccord Genuity which as retained its 'sell' rating and 1,450p target price for the stock.Full-year guidance was unchanged at the group's first-half pre-close trading update on Monday morning, but Canaccord did highlight "a few new niggles".With the firm saying that Primark like-for-like (LFL) sales are expected to grow by 7.0% in the first half, the broker pointed out that the double-digit growth rate in the first quarter has probably slowed down to the mid single digits in the last two months. The consensus estimate was for 9.0% LFL growth over the six-month period "so we suspect the market may be disappointed by these Primark figures", the broker said.Meanwhile, Canaccord also highlighted that ABF expected no incremental margin benefit in the second half from lower cotton prices. It has also taken a charge for the unexpected mothballing of two sugar beet factories in China."While the H1 profit growth this year should be strong, we would caution investors not to extrapolate this rate of growth into H2 or the years beyond. It is already known that profit growth in FY13 will be 'heavily weighted towards the first half' given the easier comps," the broker said."We think it is unlikely that ABF will significantly accelerate its European rollout by buying a block of stores from another retailer; instead we expect it to continue opening a few new stores in Europe each year as it has done thus far. The fact that Primark's new store in Frankfurt shares space with Karstadt suggests that German department stores (average size 130k+ sq ft) are too large to appeal to Primark (average size 34k sq ft, with the largest stores around 80k sq ft)."The stock - after having rocketed in recent weeks - is now trading at nearly 40% above its long-run average and the shares are pricing in "too much at these levels", according to Canaccord.The share price was down 0.46% at 1,821,58p by 10:54.BC