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The Expert View: L&G, Associated British Foods, Redrow
by Chris Marshall on Sep 19, 2013 at 05:01
Associated British Foods, a ‘compelling growth story’
Analysts are once again looking to cheap high street clothes chain Primark to power returns at owner Associated British Foods (ABF.L), with Morgan Stanley rating the shares as ‘overweight’
‘While many investors view AB Foods’ conglomerate structure as a source of earnings volatility, we expect Primark’s contribution to group sales and profits to increase significantly over the coming years’, the Morgan Stanley analysts wrote in a research note initiating coverage of the company.
Primark accounts for 29% and 42% of Associated British Foods’ sales and profits.
‘This should not only offset the deterioration in the sugar business and the potential weakness in the grocery business but also enable the group to systematically deliver high single digit top line growth, margin improvement and double-digit EPS growth, making it one the most compelling growth stories in our staples universe.’
Noting that ABF’s current share price valuation gap relative to its competitors would reduce, Morgan Stanley described the company as ‘one of the most compelling growth stories in our staples universe’.
ABF shares closed flat at £18.24 yesterday.
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