Broker tips: AG Barr, Centrica, ABF

LONDON (ShareCast) - Analysts at Investec Securities upgraded their full year forecast for soft drink producer AG Barr, citing strong performances and acquisitions. On Tuesday, the FTSE 250 group said that its profit on ordinary activities, before tax and exceptional items, increased by 10% to £41.9m, as all the group's core brands - RN-BRU, Barr, Rubicon and Strathmore - outperformed the market.

Total (Swiss: FP.SW - news) turnover rose 2.7% to £260.9m, while stripping out the impact of the loss of the Orangina, the metric grew 3.3%.

While group chief executive Roger White warned that market conditions were set to remain challenging, Investec (LSE: INVP.L - news) said the company had plans in place to deliver organic growth in 2016, adding the Funkin acquisition will provide an additional boost.

The brokerage said organic sales and margins should continue to improve next year, helped by "the benign cost environment and improved manufacturing efficiencies".

Investec said it expected profit before tax to be £44.9m in 2015, with earnings per share amounting to 30.6p. The brokerage raised its target price to 714p and upgraded its rating on the stock to 'add'.

UK utility giant Centrica (LSE: CNA.L - news) had its rating cut to 'sell' from 'hold' by Deutsche Bank (LSE: 0H7D.L - news) who cited the upcoming UK elections as a risk. "The UK's energy utilities are facing the riskiest general election since 1992 and Centrica looks most exposed," said Deutsche Bank.

It believes Centrica's shares could be worth at least 20% less under a Labour-led government than a Conservative one. "The valuation gap could be much bigger given that Labour leader Ed Miliband's mooted 10% energy retail price cut would wipe out Centrica's group earnings.

The outcome looks too close to call yet the shares appear to be pricing in a Conservative win," added Deutsche Bank. It cut the target price on Centrica stock to 225p from 280p.

For further context, Deutsche noted that in the month before the 1992 UK election UK utility shares dropped 9% on the expectation of a Labour victory but on the day after the election, when the Conservatives unexpectedly prevailed, UK utility shares jumped almost 20%.

"We believe the stakes are similar this year but will the sector see such a happy ending? Current polls suggest the outcome of the election is finely balanced, and it may prove difficult for either main party to form a stable government after the election," added the bank.

It went on to add that the outlook energy retail profits and the valuation of regulated networks would both be affected by the election outcome.

"We estimate that a 1% reduction in retail margins would reduce Centrica's equity value by 10%," said Deutsche.

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.