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Morgan Stanley goes 'overweight' on ABF
In a world full of companies struggling in the face of structural pressures, Associated British Foods/Primark and Inditex stand out as two firms investors "should generally want" to own over the long-term, Morgan Stanley says.
Nevertheless, while the broker's analysts don't yet see an inflection point ahead for Inditex - in the case of ABF they do - albeit after a 29% drop for Inditex shares and 19% fall for ABF's over the past nine months.
Morgan Stanley highlights the valuation gap which has opened up in shares of ABF, which imply that Primark is being valued at less than 12 times' its calendar year 2019 earnings - as opposed to 20 times' over at Inditex.
"We see Primark as much less mature, so this seems anomalous to us," the broker goes on to say.
Furthermore, the 3000p sum-of-the-parts valuation for ABF still looks appropriate, they add.
Hence, their recommendation for the shares has been upgraded from 'equalweight' to 'overweight'.
On Inditex on the other hand, they stay at 'equalweight', while reducing their target price from 30.0 to 26.0.