Primark owner ABF in fashion as sugar stake also sweetens rating

Associated British Foods became the standout performer on the FTSE 100 thanks to a rating upgrade.

RBC Capital Markets hiked its rating to “outperform” from “sector perform” and revised its price target upwards to £34 from £28 as it believes the blue-chip stock is “regaining earnings momentum”, buoyed by Primark’s share gains and the recent strength in sugar prices.

Analysts at the bank see potential for low-cost fashion retailer Primark to grow its store footprint in existing markets at a high single digit rate of growth over the next 10 years in existing markets.

Richard Chamberlain, of RBC, said the retailer “still offers an attractive international rollout story” and it is well positioned as it is the cheapest retailer in the price-conscious UK apparel sector. As 57pc of group sales come from outside the UK, that means it is “relatively shielded” from cost and currency pressures in the UK, the bank added. Nevertheless, like-for-like sales are expected to remain “muted” due to a tough consumer backdrop.

The dramatic recovery in sugar prices was also deemed another positive for ABF. European sugar prices have strengthened recently thanks to a reduction in EU stock levels and an increase in world sugar prices.

In May, an unconfirmed report suggested its sugar business in China was up for sale with a price tag of up to $1bn (£764m). Chamberlain added: “If a sale is concluded we think this would further strengthen ABF’s already under-geared balance sheet and potentially allow cash returns to be increased.” The bullish broker note lifted shares 101p, or 3.4pc, to £30.51. On the wider market, the

FTSE 100 suffered a bout of the post-Bank Holiday blues, ending down 17.26 points, or 0.25pc, at 6,820.79. Chris Beauchamp, of IG, blamed the resurgent dollar for the slide, “as the market scrambled to reprice assets in the wake of Janet Yellen’s speech and further commentary from other senior Fed members” at the annual Jackson Hole meeting over the weekend.

Mining stocks were among the biggest laggards on the blue-chip index. Copper prices neared a 10week low as focus shifted to this Friday’s jobs report in the US for clues about the timing of a possible rate hike. Three-month copper on the London Metal Exchange fell 0.2pc to $4,607 a tonne – its lowest level since June 24. As a result, shares in

Antofagasta fell 30p to 511½p, Anglo American tumbled 41p to 817½p, Rio Tinto shed 117p to £23.51, Glencore slipped 8p to

177.1p and BHP Billiton closed 39½p lower at £10.41.

Meanwhile, data from the Bank of England showed UK mortgage approvals fell to an 18-month low in July, causing housebuilding stocks to slide. Shares in Persimmon were off by 50p at £18.33, Barratt Development dropped 7.2p to 491.9p and mid-cap Bellway skidded 45p to £23.18.

Separately, investors piled out of Berkeley Group, down 65p to £25.95, as it faces possible demotion from the FTSE 100 today in the latest quarterly review of the FTSE’s constituents, after shares plunged 20pc since June’s Brexit vote.

On the mid-cap index, reports purporting Walmart was eyeing online grocer

Ocado helped it climb 7.1p to 307p. The stock remains the most shorted on the FTSE 350.

The theme of fantasy M&A continued as RBC Capital Markets assessed whether there is any rationale for US groups, Echostar or Dish, to approach satellite communication specialist

Inmarsat. Wilton Fry, of RBC, highlighted that both US companies have recently raised financing and as such, given the lower share price, they may “consider approaching Inmarsat giving the compelling strategic and operational logic of a combination”. Shares closed off just 1½p at 805p.

Elsewhere, despite betterthan-expected half-year results and the announcement of three small acquisitions shares in

Bunzl dipped 7p to £24.13. Finally, Aim-listed

Science in Sport jumped 6pc to 70½p after it became the official sports nutrition partner to Liverpool Football Club for the 2016/2017 season.