Initially, we thought the ‘priced for failure’ headline from the latest broker circular for Jefferies pointed to an apocalyptic assessment of the prospects of the food ingredients and Primark owner, Associated British Foods PLC.
A slightly more than cursory glance reveals it’s anything but. The folks at Jeffs say the City's price-setters have such a downer on ABF that they’ve somewhat overdone the gloom. And they wonder why.
Off 18% in the year to date, it does look like ABF has been oversold. The Primark retail arm has been consigned to the remainders bin with a ‘paltry’ valuation of seven times earnings, the broker points out for good measure.
Whether we’d say it was ‘priced for failure’ is a different matter. We think Jeffs might be being a little dramatic.
“A reconfirmation of double-digit margin expectations for the year ahead should also help address investor concerns,” said the Jeffs food team, which values the stock £27, or at a 47% premium to the current share price.
It’s hard to fathom why the shares are currently treading water (and on such a lowly rating).
Of the 22 analysts covering ABF, 17 are positive on the stock. Perhaps there has been a massed Damascene conversion. There’s only one naysayer, with the rest retaining ‘neutral’ recommendations.
The median target price is 37% ahead of the current share price, while analysts expect 2021 earnings from ABF to be up 26.1% year-on-year.