Market Report: Sugar looks likely to sour ABF success

Flogging cheap clothes has been keeping punters in Primark owner Associated British Foods happy, but City scribblers think the shares are no longer quite so sweet. The Primark to Twinings tea group could be facing bitter times at its European sugar business.

Analysts at Exane BNP Paribas think ABF could be hit by weak sugar prices at its Silver Spoon sugar business and food ingredients arm. Exane's Jeff Stent and his team said: "ABF has been the best performer within the sector … but the EU sugar market is turning". They think "the mood has quickly darkened" for sugar prices.

The Exane team thinks investors will now start to look at the "extent of the EU sugar negatives" alongside the "positives at Primark" and may want to look elsewhere. They took the red pen to the stock and now rate it underperform, with a 1,870p price target. The shares have soured 21p to 1,845p.

Primark's march on Europe has helped it to report consistent strong growth, but now some industry insiders have even raised concerns that the fashion retailer's growth in the UK could be plateauing.

From sugar to supermarkets: Tesco's shares have shaken off the horse-meat scandal, and Shore Capital and Credit Suisse are backing the retailer as its "self-improvement and corporate surgery" over the past two years is now paying off. Both analysts rate the shares a buy. Shore Capital's Clive Black and Darren Shirley say "stabilisation of the core chain appears to be under way". Shore gives the shares a 367p price target, while Credit Suisse ups its to 430p as the shares put on 5.95p to 378.15p.

The engineering turnaround specialist Melrose Industries reported a 38 per cent increase in full-year pre-tax profit and the shares rose 7.1p to 267.1p. Trevor Green, a fund manager at Aviva Investors and a shareholder in the group, said: "Management has been able to bring forward guidance on the margin potential at their recent acquisition of Elster by one year – evidence again of their ability to turn acquisitions they make into performers quickly."

A spate of analyst notes on Vodafone followed Tuesday's Bloomberg report that suggested the telecom and its US joint venture partner Verizon held merger discussions as recently as December. As the chatter was absorbed by the market, investors decided it was time again to pile into the stock and the shares dialled up a rise for a second day – up 11.2p to 179.7p – taking them to the top of the leader board. But analysts at Bernstein think "Vodafone is a very reluctant seller". They say: "As a failure to do a deal and disappointing numbers come in we expect the Vodafone share price to drift down."

Vodafone being the second-largest stock in the UK blue-chip index, its rise helped lift the overall index. The benchmark started the day well – after Wall Street's rally – and reached a five-year high.

Christopher Beauchamp, a market analyst at IG Group, said: "This has long been denounced as the 'sucker's rally'. If you look hard enough there's still plenty to be worried about."

The bulls couldn't maintain their run into the afternoon and the FTSE 100 lost 4.31 points to 6,427.64.

Two stocks expected to be relegated to the FTSE 250 were saved by a surge in their share prices on Tuesday. Serco, down 3.5p to 627p, and John Wood Group, up 35.5p to 853.5p, will now stay. Analysts at Shore Capital rated the outsourcer Serco a buy after its dividend surprise on Tuesday and gave it a 630p price target.

The Lakeside shopping centre owner Intu Properties, down 4.5p to 329.5p, and the miner Kazakhmys, down 17.5p to 555p, will be relegated.

Full-year earnings at International Personal Finance cheered investors and the shares banked a 67p rise to 473.4p.

Investors were betting on the news that Rank Group has completed its takeover of Gala Casinos and it put on 2.8p to 165.8p.

On Aim, the dating website Cupid's shares fell for a second day after results on Tuesday. Some traders speculated that the shares, down 21.5p to 110.5p, could begin to attract takeover interest again.

Mulberry, the Aim-listed purveyor of expensive handbags, saw its shares gain 8 per cent amid rumours of takeover interest. However, a denial of any interest from the French brand Hermès sent the shares back and they were static at 1,300p.

The Africa-focused oil and gas explorer Bowleven was lifted after an update on Cameroon, and the shares jetted 8.75p higher to 88.5p.

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