RBC Capital has raised its earnings per share (EPS) forecasts and price target (PT) for Associated British Foods PLC (LSE:ABF) (ABF), citing optimism for the company's prospects in its Primark and Sugar divisions.
The investment bank, which includes ABF in its Top 30 Global Ideas list, believes Primark has improved its offerings and will benefit from gross margin tailwinds in the fiscal year 2024 (FY24).
Additionally, ABF's Sugar business is expected to see a strong recovery, driven by improved UK beet yields and the performance of bioethanol producer Vivergo.
ABF is trading at an attractive 13.5 times the calendar year 2024 (CY24) earnings, with a robust double-digit three-year earnings compound annual growth rate (CAGR).
Primark, known for its value fashion, is expected to see benefits from lower raw material costs, such as cotton, and a softer buying environment. The weaker US dollar against the British pound and euro is also anticipated to help offset cost pressures, including the rise in the UK minimum wage.
The Sugar division, meanwhile, is set for a significant upturn after a challenging year, with normalized production expected in the UK and Spain. High world sugar prices and Vivergo's recovery are also contributing factors to the positive outlook.
ABF's share price target has been increased to 2,650p (from 2,600p), based on a discounted cash flow and sum-of-the-parts analysis. The recommendation remains 'outperform'.
In mid-afternoon trading, the stock was marking time at 2,396p.