Does Associated British Foods Stand To Benefit From Peers' Problems?
Spreadex | Jan 12, 2018 10:53
Will Primark owner Associated British Foods have benefited from its peers’ problems when it reveals its Q1 results next Thursday?
After a disappointing 2016 it looks like ABF had turned things around last year. From an opening price of £27.40 the stock had climbed all the way to £33.12 towards the end of October, its best price in 18 months. Yet November’s annual results upset the apple cart, with ABF crashing from those highs to hit an 8 month low of £27.74 as it entered 2018. Associated British Foods PLC now sits at a current trading price of £28.22.
So, what exactly was so unpleasant about ABF’s full year figures? Well, on the surface, not a lot. Group revenue rose 15% (6% at constant exchange rates) to £15.4 billion, with statutory pre-tax profit rocketing 51% higher to £1.576 billion, leading to a 20% surge in adjusted earnings to 127.1 pence per share.
Primark – always the most important part of any ABF update – itself posted a 12% increase in constant currency revenue to £7.05 billion, largely thanks to the company’s expansion, which saw 30 new stores open across 9 different countries. And though total like-for-like sales may have risen a more modest 1%, in the UK they were up a remarkable 10%.
Yet all of this good news was undermined by the company’s slightly cautious tone when approaching the upcoming financial year, as it claimed sugar profits wouldn’t be as high as production picks up from 2017’s ‘abnormally low’ levels and while revealing it is downsizing 3 of its 8 US locations.
The news from the retail hasn’t been that great since the New Year began, with high street stocks like M&S (LON:MKS) and Debenhams (LON:DEB) both suffering. Like Aldi and Lidl in the food sector, however, Primark is likely primed to continue to benefit from the UK’s current economic situation, and the fact it has managed to keep its prices lower than its online competitors.
Associated British Foods PLC (LON:ABF) has a consensus rating of ‘Buy’ alongside an average target price of £33.23.
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