Broker tips: Associated British Foods, Energean

(Sharecast News) - Analysts at Barclays downgraded Associated British Foods to 'equal weight' on Friday, stating visibility was "just too low".

Barclays said that with the sterling plunging to its weakest level versus the US dollar since 1985, combined with record energy costs, Primark's margins will now come under pressure - with a forecast margin of 7.5%.

In the second half of the year, the new expectation is for a margin of 8% but Barclays said that the main disappointment was news that 2023 margins will be lower than in the second half of 2022.

"Despite Primark taking HSD pricing, it can't justify taking more pricing simply to hit a percentage margin when there is massive near-term volatility on all key cost lines," noted Barclays.

"Neither currency or energy is within Primark's control, but we do think the weakness in Continental European LFLs is a concern."

Barclays stated that European like-for-likes of -18% in the fourth quarter was worse than -15% last time but noted that one positive in ABF's earnings was the fact that UK Primark trading was "very solid", with higher footfall and densities.

Analysts at Berenberg raised their target price on exploration and production outfit Energean from 1,540.0p to 1,750.0p on Friday, stating the group was delivering on both production and dividends.

Berenberg said Energean's first-half results highlighted operational and financial performance below consensus expectations but, importantly, also confirmed first gas from its Karish development in Israel was imminent.

As a result, Energean raised medium-term guidance by 25%, and confirmed its maiden dividend payment a quarter ahead of schedule.

"Energean is likely to increase the minimum $1.0bn cumulative dividend by the 2025 target, in our view, supported by FCF of $1.75bn - even assuming full repayment of the 2024 bond," said Berenberg.

The German bank stated that Energean remained "differentiated from the sector" by its contracted pricing, long-term visibility and covered dividend, and also said offered net asset value upside through near-term drilling activity.

"On our updated forecasts, the shares are trading on FY 2023 EV/EBITDA of 3.3x; EV/DACF of 3.8x; an FCF yield of 21% and a 7% dividend yield," concluded Berenberg, which also retained its 'buy' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com