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Associated British Foods’ Primark business looks sweet, according to UBS

Primark is AB Food’s star business and analysis by UBS suggests there is still plenty more room for it to grow into over the coming years

primark store
Analyst Andrew Hughes moved the stock to a ‘buy’ from ‘neutral’, and repeated his £31.50 price target

Shares in Associated British Foods PLC (LON:ABF) were on the rise on Tuesday morning after analysts at UBS upgraded the foods-to-retail conglomerate to a ‘buy’.

Andrew Hughes and his team crunched some numbers and analysed a few maps and concluded that there is plenty of room for Primark – AB Foods’ top money maker – to continue to grow.

“The results suggest around 80% upside in store numbers in the UK/Europe, which should keep space contribution close to 10% for another 5-10 years,” wrote Hughes in a note to clients.

“We [also] think the share price has overreacted to the H1 space slowdown.”

READ: AB Foods blames bad weather for Primark's poor H1

That growth potential doesn’t even include any contribution from possible expansion into the US or from entries into new territories such as Poland. If Primark does indeed venture into new markets, Hughes says that will be an additional boon for investors.

On top of that, his social media analysis suggests the “adverse PR issues” in Germany – campaigners criticised Primark’s treatment of its textiles makers – looks like it could be fading.

“With gross margins also set to strengthen as FX pressures reverse, we think double-digit EBIT growth can continue even with minimal LFL. We upgrade to ‘buy’ after weakness over the last six months,” said Hughes, who repeated his price target of £31.50.

AB Foods shares rose 1.3% to £27.42 on Tuesday Morning.

Quick facts: Associated British Foods PLC

Price: 2023.36 GBX

Market: LSE
Market Cap: £16.02 billion

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