Broker snap: Mixed views on AB Foods

3rd Nov 2009 12:39

FinnCap has described an investment in Associated British Foods as 'one to sleep easily at night with,' after the Primark owner topped market forecasts with its results on Tuesday morning. The broker said that the stock proved a haven for fund managers in the recessions of the early eighties and early nineties, and it proving similarly resilient in the current recession. 'Clean EPS are 5% higher at 57.7p, compared to most market forecasts of around 56p. The dividend is increased by 4% to 21.0p,' FinnCap analyst Charles Pick said, while noting that the figures were flattered by foreign exchange movements. The broker said that the company's outlook statement was positive, and if the business can grow earnings and dividend per share by 7% 'then the prospective [estimated] PE [price/earnings ratio] is 13.5x and the prospective yield is 2.7%.' FinnCap rates the shares as a 'strong hold', in contrast to Charles Stanley, which has reiterated its 'reduce' recommendation.'AB Foods share price has risen by 25% over the past 12 months, a reflection of investor hopes that the business might be entering a period of profit growth following several years of treading water. These hopes are reflected in the shares' 14x forward P/E [price/earnings] multiple which we continue to believe is too rich to justify as diversified a business as AB Foods is,' Charles Stanley analyst Jeremy Batstone-Carr said.Completing the spectrum of opinions, stockbroker Killik reckons the shares are undervalued on a price/earnings ratio of 13.5.'Overall, the business paints a picture of accelerating profitability throughout 2009, with the current state being even healthier. Profit growth is currently projected to be 6.5% for 2010, but we see scope for upgrades,' said Jonathan Jackson, head of Equities at Killik.