Is Associated British Foods Set To Avoid Retail Sector's Current Pitfalls?
Connor Campbell | Nov 01, 2017 10:48
Can Associated British Foods (LON:ABF) avoid the retail sector’s current pitfalls with next Tuesday’s annual results?
After a rocky 2016, which bled into the first few months of 2017, the Primark-owner seems to be firmly back on track. Since April’s interim report the stock has looked strong, eventually hitting an 18 month high of £33.88 in mid-October. Investors’ disappointment at rival Next’s Q3 update has caused the stock to fall to £32.56, though that still marks a 19% increase on its January opening price.
Those half year results in April saw ABF post a 19% surge in revenue to £7.3 billion – it was actually up 7% on a constant currency basis – alongside a hefty 35% jump in pre-tax profit to £624 million, that latter figure hugely helped by the turnaround in the firm’s sugar business. As for Primark, total sales at the bargain fashion brand rocketed 21% higher to £3.2 billion, while operating profits rose 3%; however, ABF did warn that Primark’s operating profit margin would continue to suffer in the second half of the year as its currency hedges against the dollar expire.
The third quarter update in July saw sterling’s weakness remain a huge boost for the company, so much so in fact that for the 40 weeks to 24th June group revenue rose 10% at a constant currency basis but a whopping 20% on actual exchange rates.
It’s most recent statement came on September 11th and, despite some decent figures, the fact the firm expects 2018 ‘full year margins to be similar to this year’ caused investors to send the stock 5% lower. Still, ABF claimed ‘adjusted operating profit for the group will be well ahead of last year’, and that Primark’s share of the UK market had risen ‘significantly’. Total full year sales rocketed 13% higher at the fashion brand, though a comparatively meagre 1% increase like-for-likes shows just how reliant it is on new store openings.
In terms of Tuesday’s full year results, investors will be expecting big things after those comments back in September. Any update on its outlook for 2018, especially given the worrying retail sector signs in the UK, will also be welcome (Primark arguably stands to benefit from a consumer spending squeeze given how cheap it is compared to its competitors).
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Associated British Foods PLC has a consensus rating of ‘Buy’ alongside an average target price of £33.16.
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