Higher energy and raw material costs and the slowdown in consumer spending have beset businesses this year. Unfortunately for investors in Associated British Foods (ABF), their company is feeling the brunt of all three.

Citing these concerns, Citigroup analysts yesterday cut their target price on the stock from 850p to 700p and reiterated their “sell” advice. They cautioned that British Sugar, ABF’s sugar-processing business, would require a €170-a-tonne upturn in the price of sugar to maintain profits over the next two years because of rising costs. Sugar beet farmers have been demanding higher prices in response to their own cost pressures, resulting in British Sugar being forced to increase rates in order to secure supply. Citi said that the company was now likely to face a £6-a-tonne year-on-year rise in its fixed-rate beet costs, translating into a £44 million increase. Moreover, sugar processing is energy intensive and the annual energy bill was set to rise £60 million.

The broker also gave warning that the business model of Primark, ABF’s retailing business, would face a “very robust test” in 2009 as the British consumer environment worsened. Analysts said that although trading down would enable the chain to out-perform the wider market, margins would come under pressure as the cost of sourcing clothes, mainly from Asia and the Middle East, rose as local currencies strengthened, undermining Primark’s “Pile them extremely high and sell them extremely cheap” strategy. ABF’s shares fell 19p to 764p.

Overall the FTSE 100 lost only 1.6 points at 5,370.2 as higher commodity prices mostly offset woes in the financial sector.

The index was led by Tullow Oil, up 58p to 799½p as the cost of a barrel of oil shot up to more than $121 for the first time in two weeks amid fears that the tension between Russia and the West may affect global supplies.

Cairn Energy rose 139p to £28.76, and John Wood, the energy services group, rose 23¾p to 437¾p, also buoyed by its acquisition of an Australian training company and talk of better than expected earnings being reported next week. Miners were lifted by gold prices hitting a one-week high and strong earnings from Eurasian Natural Resources, up 35p to £10.62.

Continuing fears that Freddie Mac and Fannie Mae will need a government bailout and that Lehman Brothers will report a huge loss next month sent Lloyds TSB down 10¼p to 280p and HBOS off 8¼p to 272p.

Invensys rose 6p to 268p after buying SAT Corporation, an American provider of software for industrial plants, for $52 million (£27.7 million), its first acquisition for six years.

In the second string, housebuilders gained after Persimmon, up 28½p to 327p, reported first-half results in line with expectations.

Barratt Developmentsrose 15½p to 128¼p and Bellway advanced 40p to 566p.

Imperial Energy rose 62p to £12.08 after reports in India that a government panel has approved plans by the state-run ONGC to buy the Russia-focused oil group.

- New York: Wall Street shares fell in mid-session amid fears of more credit losses in the financial sector and as rising oil prices fuelled concern that consumer spending may slow further. However, the Dow Jones industrial average rallied slightly to end the day 12.80 up at 11,430.20.

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