Interactive Investor

ii view: Primark owns the catwalk at AB Foods

24th June 2022 15:15

Keith Bowman from interactive investor

A defensive and budget friendly business offsets inflationary costs at this FTSE 100 food and clothing company. We assess prospects. 

Third-quarter trading update to 28 May

  • Total group currency adjusted revenue up 32% to £4.04 billion
  • Food revenue up 10% to £2.32 billion
  • Primark revenue up 81% to £1.73 billion

ii round-up:

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

Its retail business Primark operates 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. Group strategic initiatives currently include expanding its Primark store numbers to over 500 outlets come 2026 from a current 403. 

For investors, inflationary cost pressures cannot be ignored, with soft commodity prices such as wheat used in its food products a victim of the Russia-Ukraine conflict. A cost-of-living crisis both at home and overseas may hinder demand for both its Primark and food products, 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).

Positively, management initiatives to help counter rising costs are being pursued. Action to bolster Primark’s online presence continue to be pushed, the group’s diversity of both product and geographical footprint remains central, while an estimated future dividend yield of close to 3% is not derisory in an environment of low if rising interest rates. For now, and while some caution appears sensible, both the relatively defensive offering of food and budget clothing should leave this FTSE 100 company on the consumer radar. 

Positives: 

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

Negatives:

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

The average rating of stock market analysts:

Buy

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