Analysts at Barclays believes ABF share price set to trade higher

Analysts at Barclays remain optimistic about Associated British Foods (ABF) ahead of its latest trading update on Thursday with lockdown measures beginning to ease, allowing the group to reopen its Primark stores.

Barclays reiterated its ‘overweight’ rating for the stock and issued a target price of £23 per share – implying a potential upside of 19.9%.

ABF closed at £19.18 per share on Tuesday, with the stock down 25% year-to-date

Associated British Foods shares trade lower as second wave fears mount

ABF shares briefly recovered in mid-June after the UK government began to ease lockdown restrictions that permitted the company to reopen its popular Primark retail stores.

‘Trading in our re-opened stores has been both reassuring and encouraging, with customer queues outside most stores and, once in store, spending on larger basket sizes,’ the company said.

However, the rally was short-lived with investors growing increasingly concerned about a second wave of coronavirus cases, with the company’s earlier gains being completely eroded.

The group has always had a strong financial constitution and this update suggests sound liquidity and strong solvency to us, according to analysts at Short Capital in a note to investors.

‘The easing of Primark's restrictions with trade returning at quite satisfactory initial levels, albeit is too early to really make sensible comment, but also the better than guided cost outcome, shows good and hard work by the team's involved, in our view,’ the broker said.

‘The one key question to us for Primark from this recent experience is whether or not it leads to an adjustment in its online strategy; where partnerships maybe be a worthwhile move, especially if full and partial lockdowns are part of future life; Primark's store only model in this respect has been a strategic challenge,’ Shore Capital analysts added.

Associated British Foods: Technical Analysis

Associated British Foods has continued to hold above the 50-day SMA (£18.66), holding a zone of support that has been in place since the middle of June, according to Chris Beauchamp, chief market analyst at IG.

‘Trendline resistance from the June peak above £21 has held back progress, but a break above £19.40 would likely signal that the move higher is firmly underway,’ Beauchamp said. ‘This would then bring £20 into view, followed up by the June peak at £21.40.’

‘A more bearish view might develop with a move below £18.40, bringing the May lows at £16.15 into play,’ he added.