Broker snap: UBS hikes AB Foods target on prospects for Primark

20th Jan 2014 09:14

UBS has named food ingredients and retail firm Associated British Foods as its 'Key Call', as it hiked its target price for the stock from 2,430p to 2,890p following last week's first-quarter update."Despite sterling's strength and a further deterioration in the outlook for the sugar business (as prices have continued to fall), management maintained full-year earnings expectations," UBS said."This has been possible because of a better-than-expected performance from Primark and good inventory management."The bank believes that AB Foods, rated 'buy', should trade on a higher multiple due to the structural growth story at Primark. Primark is now being valued - based on the current share price - as 70% of the whole company given UBS' £15.5bn valuation for the retailer."Primark is a hard discount clothing retailer that combines very low prices with a 'fast-fashion' component to generate best-in-class sales densities. The formula has been very successful in the UK (with c160 stores) and is now being rolled out in mainland Europe (where sales densities are proving to be higher than in the UK), although with only c50 stores Primark is at a very early stage in its international development."Meanwhile, the bank said that the rest of the business, which includes its sugar and food divisions, is not being overvalued either."Whilst the share price might pause for breath after such a strong run, we see further upside on a 12-month view."The stock was 0.45% higher at 2,660p by 09:47 on Monday and has now risen by nearly 63% over the past year.BC