Broker snap: UBS ups target for AB Foods on Primark potential

6th Nov 2013 11:22

Associated British Foods was performing well on Wednesday in the aftermath of its full-year results, with UBS providing a lift after upping its target price for the stock from 2,030p to 2,430p.The bank reiterated its 'buy' rating for the shares.Annual figures from the company were in line with expectations with adjusted earnings per share up 13% at 98.9p, "driven by an outstanding performance from Primark where profits increased by 44% on a 22% sales increase (of which only 11% was new space)", according to the Swiss bank. This offset a more subdued performance in the Sugar and Ingredients divisions.UBS said that AB Foods should trade on a higher multiple because of the structural growth story at Primark. "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 close to 160 stores) and is now being rolled out in continental Europe (where sales densities are proving to be higher than in the UK), although with only about 50 stores Primark is at a very early stage in its international development."The bank said that it is still an "attractive entry point to the Primark story" despite the strong 50% surge in AB Foods' share price since the start of the year."Based on the current share price, our £12bn valuation of Primark means it represents 70% of AB Foods market capitalisation and implies the 'rump' is trading on an enterprise value-to-earnings before interest, tax, depreciation and amortisation ratio of approximately six. As well as a commodity sugar operation this includes the attractive Twinings/Ovaltine beverage operation."The stock was up 6.02% at 2,341p by 11:21.BC