Sweet and sour from ABF

Uneven picture for diversified food, ingredients and retail conglomerate
Thursday 09 Nov 2017 Author: James Crux

Foods-to-fashion conglomerate Associated British Foods’ (ABF) saw its shares fall 3.7% to £32.20 despite the delivery of better-than-expected full year results on 7 November, with adjusted pre-tax profit ticking 22% higher to £1.31bn.

Investors were underwhelmed as ABF confirmed it will reduce the size of three Primark stores in the US and added that higher volumes and lower costs ‘will only partially mitigate the effect of much lower EU (sugar) prices’.

Impressive annual figures reflected a strong recovery in sugar profits, growth at Twinings Ovaltine, not to mention market share gains from discount fashion chain Primark.

But the retailer’s muted 1% like-for-like growth and news Primark’s first half margins will be squeezed by the pound’s weakness versus the US dollar, took the shine off the numbers.

Primark’s operating margin this year should be similar to last year’s levels, despite the weaker sterling/US dollar exchange rate, as the recent strengthening of the euro against the greenback has a beneficial transaction effect on eurozone margins.

Liberum Capital argues that ‘ABF offers investors compelling exposure to secular growth trends in retail over the next 10 years’ and ‘margins should continue to expand from full year 2018 onwards as the FX impact abates and the group benefits from maturing stores and operating leverage.’ (JC)

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