Broker snap: Panmure upgrades AB Foods on Primark outlook

11th Jul 2013 09:20

Associated British Foods' third-quarter trading update was met with a positive reaction from markets on Thursday, with the stock receiving an extra boost by Panmure Gordon which upgraded its rating for the shares from 'hold' to 'buy'.Panmure said that trading remains in line with expectations with group sales up 9.0% in the 40 weeks to June 22nd. Growth did slow down to 8.0% in the final 16 weeks but the broker said this reflects phasing issues in Sugar and Agriculture, while growth in Grocery and Ingredients actually accelerating from the first half.The broker said that business looks set to deliver another year of double-digit earnings per share (EPS) growth, following the 18% growth reported last year. It reiterated its forecast for 10.2% EPS growth this year (ending September 30th) to 96p.The standout performance once again came from Retail where sales growth at Primark remained "very strong" in the third quarter at 20%, the broker said."Very cold weather in March and April led to 'subdued' like-for-like (LFL) sales growth, but a marked improvement was seen in May and June and we estimate overall LFL growth in the 16 weeks was 3.0%, comfortably ahead of key peers."The stock trades at a 20% premium to European fashion retailer Inditex, "but with Primark's continental European business still very much in its infancy (but having proved its appeal across a wide range of countries), we believe Primark is set for another decade of strong growth", the broker said.Panmure hailed Primark's pipeline of store openings which looks "particularly impressive" for next year.The target price for the shares has been hiked from 1,800p to 2,100p.The stock was up 6.12% at 1,926p by 10:20.