Broker snap: Panmure cuts AB Foods target on lower sugar prices

9th Sep 2013 09:12

Panmure Gordon has trimmed its price target for food, ingredients and retail group Associated British Foods (ABF) despite a confident full-year outlook from the firm on Monday.The company said that adjusted operating profits in the second half will be ahead of expectations helped by a strong finish to the year from retail arm Primark. As such, Panmure has raised its group earnings per share (EPS) forecast for the year ending September 2013 by 1.2% from 96p to 97.2p, which implies 11.4% growth year-on-year. Cash flow was also better than expected, leading the broker to cut its year-end net debt forecast from £920m to £900m.However, while next year's forecasts for Primark have also been hiked, sugar prices are looking much weaker than expected, driving a 3.6% reduction in the 2014 (September end) EPS estimate from 104.8p to 101p. Panmure said this reflects "a weaker pricing environment in EU Sugar driven by higher availability of sugar due to the conversion of non-quota sugar to quota, additional tariff rate quotas for imports and low world sugar prices."Nevertheless, the target price for ABF has been cut by a lesser 1%, from 2,100p to 2,075p, "as the high PE earnings (Primark) have been upgraded, whilst the low PE earnings (Sugar) was the driver of the downgrade.""While ABF is likely to deliver a lower level of EPS growth in 2014E, this is after more than 31% growth over the past two years, and the mix of earnings continues to improve with Primark, we estimate, now accounting for over half group net income."Panmure maintained its 'buy' rating on the stock.The market however gave a cool reaction to the trading update on Monday, with shares down 1.89% at 1,816p by 10:43.BC