Sugar and Primark group lifted as Goldman moves from sell to buy on US hopesLeading shares have drifted lower as the Greek stand-off continues, and ahead of a revision of US growth figures.But Associated British Foods, hit recently by concerns about its sugar business and the effect of a strong dollar on product buying at its Primark chain, has climbed to a two month high after a boost from Goldman Sachs.Our analysis of the US market suggests that Primark’s launch will be a success, particularly with the millennial consumer cohort (around 40% of US versus around 25% of UK/Western Europe), which is large and growing, has more value-oriented shopping habits, and prefers fast fashion.We expect the [September] launch of the Primark store in Downtown Crossing, Boston, to provide a catalyst re-focusing investors on the Primark long-term growth story following near-term negative sentiment around sugar and dollar sourcing. We also expect any commentary at the interim managment statement (July 9) regarding strong performances at Primark, confidence in the US launch and stabilization in other businesses, to be taken positively. After reviewing our valuation of Ophir’s Equatorial Guinea Block R FLNG project, we upgrade our rating on Ophir to overweight with an increased 225p price target (from 200p). Offering potential upside of around 75% versus the peer group average of around 40%, we also make Ophir our top pick for the industry.We believe recent stock price weakness (down 25% in the last month, versus the peer group down 15%) combined with significant progress in Equatorial Guinea provides an attractive opportunity to revisit the Ophir investment case. In addition to seeing upside to the Block R development concept, we believe Ophir is well positioned to take advantage of declining industry costs and continues to have a very strong balance sheet with first half estimated net cash of around $600m. Continue reading...
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