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Associated British Foods Trading Update – What The Analysts Said

By Steve Wynne-Jones
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Associated British Foods Trading Update – What The Analysts Said

Associated British Foods has said that its outlook for its full financial year is 'slightly better than previous expectations', with group operating profit expected to be 'moderately ahead' of the previous year.

In a pre-close trading statement, the Primark owner said that its Retail business was expected to post like-for-like sales growth of 15% for the full year, while its Food business continues to see 'strong sales growth'.

Here's how leading industry analysts from Wealth Club, AJ Bell, Shore Capital, Liberum, Davy and Barclays viewed its performance.

Charlie Huggins, Wealth Club

"A strong performance from AB Food's non-retail divisions has led to a modest increase to profit expectations for the year. Sales remained strong at Primark, which is impressive given the tough economic environment and unhelpful weather conditions, although margins were slightly weaker than expected due to higher theft.

"Encouragingly, the inflationary headwinds for Primark appear to be abating. The group expects Primark's margins to recover strongly next year driven by lower material costs, a weaker US dollar and lower freight costs, all of which have improved in recent weeks. This should help drive a stronger profit performance next year, even if pressures on the consumer persist.

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"The sales performance from Primark this year has been very solid. This is impressive given the recent demise of Wilko's and the travails of other High Street brands. It shows that the High Street isn't dead and shoppers still love a bargain, but you need a brand that resonates strongly with consumers. Primark has that. This should leave it strongly positioned whichever way the economic winds blow."

Russ Mould, AJ Bell

“After experiencing two years of growing cost pressures, these negative factors on the business have started to reverse. Think raw material and freight costs which should lead to better gross margins for its Primark retail chain.

“While there have been some hiccups along the way, such as unfavourable weather conditions in several geographic territories which has hurt footfall to its shops, the outlook for Primark continues to be favourable. It is rolling out more shops, expanding a click and collect trial to include more products and it is pushing up prices where possible.

“Even the non-retail parts of its business are generally doing well, with the company reporting brighter prospects ahead.”

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Clive Black, Shore Capital

"ABF’s trading statement for the 52-weeks to 16 September 2023 is a good one in aggregate to us with management slightly raising EBIT expectations, which we deem to be low single digit, and speaking to a strong recovery in FY24 Retail operating margins and overall, Sugar profitability, noting a weaker than expected FY23 Primark trading margin. Indeed, ABF appears to be exiting FY23 strongly, stating that it is ‘trading well’, and we out through a significant FY24 upgrade driven by Primark and Sugar, taking EOS to £164.5p (from151.7p)

"At a divisional level, ABF speaks to a better-than-expected period in Sugar and strong sales growth in Grocery and Ingredients, with Food EBIT ‘strongly’ ahead of the FY22 out-turn. For Retail, so Primark, ABF talks to 9% like-for-like (‘LFL’) growth year-on-year, 8% in Q4, 15% in total on a FY & Q4 basis with FY23 EBIT margin coming in at c8%, c7.8-7.9% for H2, so slightly behind plan driven by in store stock losses (theft) and c£10m of German restructuring charges.

"ABF has also completed £442m of its £500m FY23 buyback programme and sustains a strong balance sheet."

Anubhav Malhotra, Liberum

"FY’23 operating profit will be slightly better than previously expected driven by better-than-expected performance in the Sugar business. Primark’s LfLs in 4Q’23 have remained solid at +8% (+7% in 3Q’23) and full year margins are expected to be c.8%, slightly below prior guidance of around 8.3%.

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"The group has provided a positive outlook for FY’24E with Primark adj operating profit margin expected to recover strongly and Sugar profitability to improve substantially in FY’24E underpinning consensus expectation of 11.4% adj. EPS growth in FY’24E. The shares trade on 12.9x FY’24E PE multiple and 7.0x FY’24E EV/EBITDA multiple on consensus estimates, a c.30% discount to the 10-year average."

Gary Martin, Davy

"Associated British Foods (ABF) now anticipates FY23 adjusted operating profit to be ‘slightly better’ than prior expectations, supported by an enhanced operating profit expectation in its Foods categories. Primark has continued to trade well with Q4 like-for-like (LFL) growth of +8% (Q3: +7%); however, H2-23 operating profit is now expected to be slightly below 8% (previous: c.8.3%).

"The FY24 outlook is positive, with a strong improvement in Primark operating profit margin supported by a ‘substantial’ recovery in gross margin. At first glance, we envisage minimal changes to our current forecasts."

Warren Ackerman, Barclays

"Although Primark's EBIT margin will be lower than expected at <8% in 23 due German restructuring costs, the 24 margin outlook is more positive on lower (fabric) costs and FX. Coupled with a strong showing in Grocery and sizeable sugar upgrades for 24, we upgrade our 24 EBIT estimates by 7% and raise our TP to 2400p.

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"Solid Primark LFL trading in Q4 despite unhelpful weather trends in a number of countries. Primark LFL growth accelerated from 7% in Q3 to 8% in Q4. We estimate the 8% in Q4 was split 9% pricing and -1% volume. UK LFL in Q4 was 7% with UK value market share up 20bp to 6.4% in the twelve weeks to 20th August. European LFLs were 9% in Q4.

"Overall this Q4 performance would imply FY23 Primark LFL of 9% (split 10% in H1 and 7% in H2)."

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