UBS lifts AB Foods target on Primark potential

10th Mar 2014 11:39

UBS has hiked its target price for food and retail company Associated British Foods by 14 per cent and reiterated its 'buy' stance, saying that the Primark business is 'still at an early chapter'."We believe AB Foods should trade on a higher multiple because of the structural growth story at Primark," said Analyst Alan Erskine."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 circa 160 stores) and is now being rolled out in mainland Europe, although with only c50 stores Primark is at a very early stage in its international development."Erskine has raised his 20-year discounted cashflow-derived valuation of Primark to £19bn, from £16bn previously, which reflects rolling forward estimates by a year given that AB Foods is over halfway through its fiscal year (ending September 2014).Along with higher estimates for space growth, UBS now anticipates 10.5% per annum sales growth and around 925 stores at Primark by 2034, up from its previous forecast of 10% and 825, respectively.As such, the target price for the stock has been raised from 2,890p to 3,300p."Whilst the share price might pause for breath after such a strong run, we see further upside on a 12-month view," Erskine said.The stock was 0.7% higher at 2,991p by 11:38 on Monday.BC