Associated British Foods Half-Year Results – What The Analysts Said

By Steve Wynne-Jones
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Associated British Foods Half-Year Results – What The Analysts Said

Associated British Foods has posted a 3% increase in sales, to £7.6 billion (€8.7 billion), in the first half of its financial year.

Commenting on the period, which ran to 29 February, the group said that its Primark business 'performed well', with its Grocery business achieving excellent profit and margin growth. However, it added that the COVID-19 epidemic has presented the business with an 'extremely challenging period' ahead.

Here's how leading industry analysts viewed its performance:

Darren Shirley, Shore Capital

"Associated British Foods has issued H1 FY2020 results that are broadly in-line with our expectations, with CPTP (post IFRS-16) at £636m (Shore Capital [SC] forecast £634m) and EPS up 3% yoy to 61.8p (SC 60.7p). No interim dividend is proposed, which was our central expectation and so does not comes as a surprise.

"With little to no visibility on H2 profitability under current lockdown conditions, we keep our forecasts withdrawn though remain strongly of the view that with a very strong balance sheet (a feature of ABF’s prudent nature) and access to significant liquidity, the Group and its Primark retail business are well placed to come through the current market challenges in an even stronger relative position than before.


"We also see the broad-based nature of ABF as a major virtue under current conditions (noting management expectations ex Retail are said to be unchanged), so providing an ongoing source of operating cash flows."

Katy Hutchinson, Davy

"Associated British Foods’ (ABF) H1 statement was broadly in line with expectations – investor focus is now firmly placed on the timing and phasing of Primark store re-openings. The negative impact of COVID-19 on like-for-likes (LFLs) and margin will likely continue into H1 2021.

"While the impact of the outbreak on Primark will be profound, ultimately ABF remains a quality operator with strong franchise value in Primark. In this environment, ABF’s operationally diversified structure serves it well."

Pippa Stephens, GlobalData

"Though Primark’s performance for H1 FY2019/20 once again displays impressive revenue growth, particularly internationally, the outbreak of COVID-19 will drastically impact its performance for the rest of the financial year, with all of its stores forced to temporarily close by the end of March. UK l-f-ls remained challenging throughout H1, down 1.7%, whereas Eurozone l-f-ls were marginally positive at 0.2%, driven by strong performance in France and Italy.


"Following its return to normal trading, Primark must shift its focus from opening new sites to making improvements to its existing UK store estate, through greater roll-out of its experiential features beyond just flagship locations, and the refurbishments of older stores, to regain footfall.

"Primark’s lack of a transactional website means that it has no way of making up the £650 million net global sales a month it usually makes through its stores, and so risks losing its position as the UK clothing market leader this year. The UK clothing & footwear sector’s online penetration is expected to reach 36.5% in 2020 due to widespread store closures, with the long term shift to online spending expected to be accelerated by COVID-19.

"While the retailer is confident that it has enough cash to remain resilient to the impacts of the pandemic, the unprecedented event will have likely given Primark reason to rethink its bricks-and-mortar only strategy for the future."

Anubhav Malhotra, Liberum

"All of Primark’s 376 stores remain closed since 22nd March, 2020 resulting in lost sales of £650 million per month. The company has committed to pay for all stock-in-transit, worth £600m, and has accepted an additional £370 million of orders that were planned for handover by April 17. The Group has created a £284 million provision for expected lower net realisable value of Primark inventory when stores re-open.


"As a result of all the cost mitigation measures and government support, ABF currently estimate being able to recover c. 50% of Primark’s total operating costs, leaving it with a monthly cash outflow of £100 million. No interim dividend will be paid this year, but a decision on full year dividend will be made later."

Barclays European Food Retail Equity Research

"After a better than expected H1 profit performance driven by Grocery and Primark margins, there is an unchanged H2 outlook for Sugar, Grocery, Agri and Ingredients. However, given the uncertainty about Primark's store reopening plan given Covid-19, it is of little surprise that it has withdrawn guidance this year and plans no interim dividend as it prioritises cash preservation.

"With c£2 billion of liquidity, ABF has stress-tested scenarios where stores could be closed for more than a year and still have ample headroom. We suspect Austria could be the first Primark country to reopen (five stores), which would provide a good marker for other countries. Primark's less numerous but larger stores vs peers is an advantage helping reopening logistics."

© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine

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