"We believe AB Foods should trade on a higher multiple becauseof the structural growth story at Primark," said UBS analyst Alan Erskine in a note released Monday. As a result of this renowed vote for the apparel arm of the British group, the Swiss bank has hiked its target price for food and retail company.
UBS now has increased its price target on Associated British Foods stock by 14 percent and reiterated its 'buy' stance, saying that the Primark business is "still at an early chapter".
"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 50 stores Primark is at a very early stage in its international development."
Looking ahead, Erskine has raised his 20-year discounted cashflow-derived valuation of Primark to 19 billion pounds, up from his former 16 billion pounds valuation. Likewise, UBS now anticipates 10.5 percent annual sales growth, up from a previous forecast of 10 percent.
As such, the target price for the stock has been raised from 2,890 to 3,300 pence. On that, Erskine further explained that "whilst the share price might pause for breath after such a strong run, we see further upside on a 12-month view."
On the wake of the news, the stock traded up, gaining 0.7 percent by the close of the session.