ii view: AB Foods grows Primark in US, but is it enough?

A food and value retailing business offering wide geographical diversity. We assess prospects. 

Trading update for 16 weeks to 8 January

• Revenue up 16% to £5.57 billion
• Total food revenue up 5% to £2.90 billion
• Retail revenue up 32% to £2.67 billion
• No change in profit guidance

ii round-up:

Associated British Foods (LSE:ABF) operates across the five divisions of grocery, sugar, agriculture, ingredients, and retail. 

Its retail business Primark has 401 stores across the UK and Ireland, much of Europe and parts of the USA. 

Brands for its food businesses include Twinings, Ovaltine, Mazzetti, Silver Spoon and Billington’s sugars, Jordans and Dorset cereals, Ryvita, Kingsmill, Patak’s, Blue Dragon and Mazola.

For a round-up of this latest trading update, please click here. 

ii view:

Started in 1935, AB Foods is today a multinational food processing and retailing business headquartered in London. It employs over 125,000 staff in more than 50 countries. Geographically, the UK generates its biggest slug of sales at around 36%. Europe and Africa account for a similar amount, with the rest of the world making up the balance. 

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Current group initiatives include expanding its Primark store numbers to around 530 outlets come 2026. Launching a new, improved customer-facing website in the UK and simplifying its in-store UK retail management structure. 

On the downside, a lack of any upgrade in overall profit expectations within this latest update may have disappointed some investors. Pandemic outlook uncertainty cannot be completely removed and environmental concerns around Primark and the wider fashion industry’s high product turnover also persist. 

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More favourably, supply chain disruption has eased and Primark sales in the US led the way in this latest quarter, up 37% from two years ago. Expansion of the retailing business is being pursued, while an estimated future dividend yield of around 2.5% is not insignificant in an era of ultra-low interest rates. In all, and with its diversity of businesses continuing to show its worth, and analysts estimating a fair value share price of almost £24, reason for long-term optimism looks to remain.

Positives: 

• Diversified business type and geographical footprint
• Targeting 530 Primark stores from 401

Negatives:

• Pandemic and economic outlook uncertainty
• Many factors outside of its control like commodity prices and currency moves 

The average rating of stock market analysts:

Strong buy