Associated British Foods drops 2.6% after Credit Suisse cuts forecasts

LONDON (ShareCast) - Shares (Berlin: DI6.BE - news) in Primark owner Associated British Foods (LSE: ABF.L - news) tripped lower on Tuesday after Swiss bank Credit Suisse (LSE: 0QP5.L - news) lowered its earnings forecasts for the company citing euro weakness. Although the bank retained it's 'outperform' rating and price target of 3,250p on the stock, the ongoing weakness of the euro currency as the European Central Bank launches its stimulus programme meant AB Foods' earnings forecasts were up for the chop by 3% this year and 8% next year.

"AB Foods doesn't usually feature in our regular FX updates on the sector, but given the severity of the euro's demise it should. For ABF the impacts are more transactional than translational," said the bank.

It noted that its Primark largely sources in US dollar, but increasingly has a euro revenue exposure.

"Nothing new in this, and we already had anticipated an 110bps margin decline. The last time (2009) the US dollar rose 25-30% against the British pound, Primark's margins fell 160 basis points and this now forms the basis of our 2015/16 forecast," said Credit Suisse.

In the sugar business, Credit Suisse said the group's costs are in pounds but selling contracts are in euro.

"Though the beet price is set to fall in the new year the revenue line (in sterling) will be softer too unless euro prices rise (which at this stage isn't in our expectations)," added the Swiss Bank.