Broker snap: Panmure impressed with Primark growth at AB Foods

17th Jan 2013 09:47

Panmure Gordon has retained its 'hold' rating for Associated British Foods but has hiked its target price after Thursday's trading update, saying that the group should be a 'core holding in the sector'.The broker praised the "stunning growth" at AB Foods' Primark division, which prompted the firm to state that results for the first 16 weeks of the fiscal year have been ahead of expectations. Panmure labelled Primark's 27% constant currency sales growth during the period was "outstanding"."The rest of the group has performed in-line with expectations, but the focus for investors in our view should be how to value Primark within the ABF group. Our sum-of-the-parts models assigns a value to Primark of £7.78bn, equating to 22.7x price-to-earnings and 13.0x [earnings before interest, tax, depreciation and amortisation] for September 2013E, and drives an increase in our price target from 1,450p to 1,670p."Panmure's new target price for AB Foods implies a further 9.4% total return over the next 12 months.The broker has hiked its earnings per share (EPS) forecast for the current year (ending September 2013) by 3.2% from 92.0p to 95.0p, equating to 8.9% growth on last year. Subsequent-year forecasts have been raised by a similar amount."ABF was our large cap stock of the year in 2012, and despite a 36% rise over the last 12-months, we believe that given the long-term growth potential of Primark, ABF should be a core holding in the sector."Shares were trading 4.95% higher at 1,633p by 10:12 on Thursday.BC