Broker tips: AB Foods, Primary Health Properties, IAG

Analysts at Deutsche Bank raised their target price on Associated British Foods from 2,180.0p to 2,300.0p on Tuesday, stating its Primark unit had driven "another upgrade".

Deutsche Bank said AB Foods' recent pre-close trading update reinforced its "positive view" on the stock, with a better Primark sales and margin performance and robust performance across its food businesses - more than offsetting a weaker sugar performance.

The German bank stated ABF's upgrade to underlying earnings and earnings per share guidance saw "a more muted investor reaction" than it had expected, which reflects "improved expectations across the street".

"AB Foods remains one of our top picks in the European retail space given the strong Primark LFL, new space and margin recovery in addition to the robust food businesses performance and benefit from £500.0m share buyback," said DB, which stood by its 'buy' rating on the stock.

"Trading on circa 14.5x price-to-earnings for circa 15% earnings per share growth in FY24e, we believe the risk/reward is skewed to the upside."

Analysts at Berenberg lowered their target price on real estate group Primary Health Properties from 165.0p to 125.0p on Tuesday as it said it continues to see "better opportunities" elsewhere.

Berenberg stated Primary Health Properties' full-year results reflected "another resilient year", demonstrating the benefits of its "high-quality tenant counterparties and assets", which remain "critical" to national infrastructure.

Despite this resilience and its recent acquisition of Axis, Berenberg expects near-term expansionary activity to remain limited by current market conditions and above-average leverage.

The German bank also expects PHP to be affected by "some additional negative valuation impacts" in 2023 and for debt refinancing to pressure earnings growth from 2025.

"As such, although the shares should continue to provide solid income for risk-averse investors, we continue to think that there are better opportunities, for growth or income, elsewhere in the sector," said Berenberg, which stood by its 'hold' rating on the stock.

Liberum lifted its price target on BA and Iberia owner IAG to 240.0p from 220.0p and reiterated its 'buy' rating on the shares.

"Our forecasts remain at the top end of management's profit guidance range for the current year," Liberum said. "This reflects our optimism that economic activity, and hence air travel demand, will remain ahead of airline industry capacity relative to pre-pandemic levels."

"GDP, and economic activity more generally, recovered relatively quickly from the impact of the pandemic. In contrast, air travel lagged significantly, despite being a derived demand," noted Liberum, which now expects 2023 revenues of €28.8bn - up from a previous forecast of €26.1bn.

"This reflected the widespread imposition of onerous international travel restrictions, up to outright travel bans in some cases. These restrictions have been lifted, but although capacity restoration was rapid last year, it has continued to lag pre-pandemic levels."

Liberum said it perceives a gap between economic activity and airline industry capacity relative to pre-pandemic levels, even if there is an economic slowdown.

"In our view, this implies headroom for the air travel recovery to continue, with positive pricing trends maintained, underpinned by capacity lagging both 2019 levels and the levels that would are implied by economic activity levels."