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 Partners, said.
“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 news.”
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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