Broker tips: AB Foods, Celtic

By Iain Gilbert

Analysts at UBS downgraded Primark owner Associated British Foods from ‘neutral’ to ‘buy’ on Wednesday, stating setbacks at the fast fashion retailer had forced it to move to the sidelines.
UBS stated that it made the move following AB Foods’ pre-close update for three reasons – the first being group adjusted operating profit cuts of 3% and 14% for 2022 and 2023, respectively, driven mainly by the Primark downgrades of approximately 8%-27% and grocery downgrades of about 10%, offset in part by upgrades in sugar.

The Switzerland-based bank also stated that while it expects Primark to bridge back to roughly 10% margin over the mid-term, the margin profile over that time was below its prior expectations.

Finally, UBS also flagged higher capital intensity, raising capex, and working capital requirements for Primark over the forecast period, which leads to lower valuation for the division both in our discounted cashflow and sum of the parts assessments.

“We think Primark is likely to emerge in a stronger competitive position in the midterm following this decision not to raise prices beyond what is in the pipeline for Spring/Summer next year. But we expect the shares to perform in line with market until there is evidence of some progress on sales/margin trends,” said the analysts, who also cut their target price on the stock from 2,300.0p to 1,450.0p

“With limited potential upside to our PT and an apparent lack of catalysts, we cut our rating to ‘neutral’.”

Analysts at Canaccord Genuity raised their target price on football club Celtic from 156.0p to 170.0p on Wednesday, stating it was “back at Europe’s top table”.

Canaccord Genuity said Celtic’s full-year results were “comfortably ahead” of its forecasts, with revenue growth of 45% year-on-year and a reduced trading loss pre-player trading.

“The Club returned to winning ways in 21/22 by regaining the league title and the Premier Sports Cup, marking a tenth league title victory in eleven seasons. After the challenges of the previous season, the immediate return to winning ways was crucial for a Club used to so much success and, importantly, has delivered a direct route into the lucrative Champions League Group stages,” said the analysts.

The Canadian bank, which reiterated its ‘buy’ rating on the stock, noted that the total Champions League financial “dividend” remains dependent on Celtic’s performance over the coming months, but said there “should be” a significant amount of income based on qualification and its ranking coefficient.

“We have increased our FY23E forecasts to reflect the strong FY22 outcome coupled with the benefits of Champions League qualification and now forecast a meaningful profit post player trading for the current year, before a reversion to a breakeven outcome in FY24E, in line with the Club’s ambition to deliver a minimum breakeven result. We continue to believe that Celtic’s strong global franchise and strong balance sheet leave it well-placed for the future,” said Canaccord.

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