Interactive Investor

ii view: Primark still growing after 50 years

AB Foods' sugar and grocery profit are expected to sweeten Primark growth in 2020. Time to buy?

5th November 2019 12:40

Keith Bowman from interactive investor

AB Foods' sugar and grocery profit are expected to sweeten Primark growth in 2020. Time to buy?

Full-year results to 14 September 2019

  • Revenue up 2% to £15.8 billion
  • Adjusted profit before tax up 2% to £1.41 billion
  • Statutory profit before tax down 8% to £1.17 billion
  • Final dividend of 34.3p – total dividends per share up 3% to 46.35p

Chief executive George Weston said:

"The group delivered a resilient performance this year, with strong profit growth from Grocery and Primark which more than offset the profit decline in Sugar. We continued to pursue the opportunities to grow our businesses with a gross investment of over £800 million. Next year the group is well-positioned for further progress, with the continued expansion of Primark, a material improvement in our Sugar profit and strong profit growth in Grocery."

ii round-up:

Associated British Foods (LSE:ABF) is a diversified international food, ingredients and retail group. 

Employing more than 135,000 people in over 50 countries, it operates across the five divisions of grocery, sugar, agriculture, ingredients and retail. 

The company's retail business, Primark, generating almost half of overall sales, has over 365 stores across the UK, Europe and the US. The retailer is this year celebrating the 50th anniversary of its first store opening. 

Group food brand names 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 these full-year results, please click here

ii view:

Diversity of its business divisions and geographical location help Associated British Foods to balance out volatility in food commodity prices such as sugar or currency movements – factors outside of management's control. A 5% decline in full-year 2019 sugar revenues was largely neutralised by a 4% gain in ingredient sales. 

Primark's discounted offering appeals to consumers still battling tough economic times. Full-year like-for-like sales growth was achieved in Spain, Portugal, France and Italy. Total retail selling space increased by just under one million square feet with 14 new stores opened. Less favourably, environmental concerns around the wider fashion industry's high product turnover require monitoring. 

For investors, a prospective dividend yield in the region of 2% (not guaranteed), although covered nearly three times by earnings, lacks obvious appeal. But a forward price/earnings (PE) ratio of under 20 and standing below both the three and 10-year averages could prove more enticing. 

Positives: 

  • Diversified business type and geographical footprint
  • Primark discount offering appeals to wage squeezed consumers
  • A progressive dividend policy. Total dividend for the year up 3%

Negatives:

  • Factors outside of its control - weather, raw material prices and currency movements - can impact 
  • Primark same store sales declined by 2% - down 1% in the UK 
  • The clothing and fashion industries have come under environmental scrutiny

The average rating of stock market analysts:

Buy

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