Associated British Foods falls 3.6 percent, the top FTSEurofirst 300
faller in early deals, with traders citing negative read-across to the
food and textile retailer's sugar business from a profit warning by Suedzucker
The German sugar producer warns on Tuesday it expected a drop in revenues
and profits this year, citing difficult European sugar and bioethanol markets
and sending its shares over 15 percent lower.
The warning comes after a similar warning by British competitor Tate & Lyle
in February. By contrast, Associated British Foods reiterated its full
year guidance in February, and has outperformed the market so far this year.
The latest profit warning in the sector has fuelled concerns that ABF may
have to also cut guidance, traders say, despite continued strength in its
clothes retailing arm Primark.
"(ABF) could take a whack from their sugar division, which is about a
quarter of its business. Primark is still going relatively well... but it's
read-across from Suedzucker," Manoj Ladwa, head of trading at TJM
"It's had a fantastic run, primarily on the back of Primark, but valuations
seem pretty high, and it could potentially warn on profits on the back of this
ABF remains up 8.1 percent for the year, compared to Suedzucker, which is
down 12.4 percent, and Tate & Lyle, down 19.4 percent this year. Having already
issued a profit warning this year, Tate & Lyle is only down 0.5 percent
following Suedzucker's announcement.
According to Thomson Reuters Starmine, ABF trades at a SmartEstimate
Price/EPS (forward 12 months) ratio of 25.9, compared to Tate with 12.7 and
Suedzucker with 14.4. Consumer staple heavyweights Nestle, Danone
, Unilever and Reckitt Benckiser all trade between
18-19 times EPS.
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