Interactive Investor

ii view: Primark owner AB Foods sweetens outlook

30th January 2023 15:01

by Keith Bowman from interactive investor

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This major retailer and food manufacturer is up by more than 10% year-to-date. We assess prospects. 

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Trading update for the 16 weeks to 7 January

  • Group revenue up 20% year-over-year to £6.7 billion

Guidance:

  • Continues to expect full-year revenues to be significantly higher than last year
  • Continues to expect full-year adjusted operating profit to be lower

ii round-up:

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

Its retail business Primark is located in 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 announced on 24 January, 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. Group strategic initiatives currently include expanding its Primark store numbers from a current 416 outlets.

For investors, management expectations for group profit to fall over this current financial year given headwinds at Primark persist. Rising interest rates and a cost-of-living crisis make for a challenging backdrop, while Primark’s lack of a significant online presence over the course of the pandemic contrasts with that of clothing rivals such as Next (LSE:NXT)

On the upside, accompanying management outlook comments suggest an expected easing in headwinds for Primark over 2023. Growth in overall group full-year sales continues to be forecast, action to bolster Primark’s online presence is being pushed, while shareholder returns have been bolstered by a new £500 million share buyback programme.

In all, and while the relatively defensive offering of food and budget clothing should reassure, investors may want firm evidence of a profit recovery. 

Positives: 

  • Diversified business type and geographical footprint
  • Expanding Primark store numbers

Negatives:

  • Uncertain economic outlook
  • Many factors outside of its control like food commodity prices and currency moves 

The average rating of stock market analysts:

Hold

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