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

By Steve Wynne-Jones
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Associated British Foods saw group revenue fall by 18% on a constant currency basis in the first half of its financial year, with the group impacted by the prolonged closure of its Primark store estate.

"With our success in a number of new markets, as wide-ranging as Poland and Florida, we are as convinced as we have ever been in the long-term growth prospects for Primark," chief executive George Weston said in a statement.

Here's how leading retail analysts viewed its performance.

Anubhav Malhotra, Liberum

"Primark delivered record sales in the first week of re-opening of stores in England and Wales last week, with total footfall for the whole estate back to pre-pandemic levels. 1H’21 results were expectedly impacted by trading restrictions, with group sales down 17% yoy and operating profits down 46% yoy (-90% at Primark).

"With stores re-opening and liquidity remaining strong (net cash of £705m excluding lease liabilities as at the end of 1H’21), Primark has decided to repay furlough costs of £121m and reinstate an interim dividend of 6.2p. Management maintained an optimistic outlook for Primark space expansion, highlighting a strong pipeline in Europe and plans to aggressively expand in the U.S. over the next five years.

"In our view, the Primark proposition remains highly relevant and resonates even with today’s digitally native consumers, and we believe the upheaval in retail caused by the pandemic will provide opportunities to accelerate store openings and take market share."

Russ Mould, AJ Bell

“There are few better barometers for the health of physical retail than Primark, which doesn’t sell online. Big queues formed outside Primark stores as they opened their doors following the reopening of non-essential retail in England on 12 April but it is still notable that its owner Associated British Foods reported record sales for the discount clothing chain over the past week.

“Primark clearly has brand loyalty and serves a cost conscious market which is keen to get out to the shops and see and feel items of clothing before making a purchase. It looks like people are not just buying essentials, as they did after previous lockdowns. They’re picking up fashion items too, perhaps anticipating a return to going out and socialising as freedoms return.

“Associated British Foods’s diversified approach, with food, agriculture and ingredients businesses all important parts of the group, helped it get through periods when Primark stores were shuttered thanks to lockdown, though any weakness from these business units in the second half of its financial year would dilute the impact of a big rebound in retail.

“Associated British Foods demonstrated its resilience and put a tick in the ESG box by agreeing to return the funds provided by the Government under the furlough scheme and this allows for a notable milestone in the group’s recovery of resuming dividends.”

Pippa Stephens, GlobalData

“With the majority of Primark’s retail space having been shuttered for most of H1 FY2020/21 as a result of COVID-19 restrictions, its revenue plummeted by £1.5bn to £2.2bn. Nonetheless, in England and Wales it has unsurprisingly been one of the most in demand retailers since the reopening of non-essential stores on 12 April, with queues experienced outside its major locations, footfall returning to pre-COVID-19 levels and record sales achieved across much of its estate.

"Its popularity is a result of its wide appeal product ranges and value price positioning, with the latter becoming increasingly favourable to consumers amid this period of economic uncertainty. However, with many of its European markets recently introducing new lockdowns, Primark estimates that it will lose another £700m in sales in H2.

"Primark’s strong presence in international markets outside of the UK provided a lifeline during H1 FY2020/21, due to lesser impact of store closures, aiding its adjusted operating profit to successfully stay in the green at £43m for the period. With all stores open in the US, performance in the region was promising, with like-for-like (l-f-l) sales down by just 11%. Stores in several of its EU markets were also able to continue trading, though reduced opening hours and travel restrictions caused l-f-l sales to fall by 20%.

"Despite the ongoing turbulence, Primark still plans to add nine more stores to its portfolio in H2, in locations such as Spain, Italy and Poland, following the six that opened in H1. As it has implemented in some stores in the Netherlands, Germany, and Belgium, it should introduce a pre-booking system in these stores when they open, as this will help boost consumer confidence to visit until the rollout of the vaccine advances further."

Darren Shirley, Shore Capital

"Associated British Foods has issued H1 2021 results that are a strong reflection of Covid and the ongoing unprecedented times, with Group sales and EBIT down materially year-on-year (yoy) with a large proportion of the Primark retail estate temporarily closed through much of the period.

"Trading on a sub 20x FY2022 PER, and an EV/EBITDA multiple of c8-9x we reiterate our BUY stance on ABF’s stock this morning; we firmly believe that this strong and high quality business deserves a double-digit EBITDA multiple."

Roland French, Davy

"Associated British Foods’ (ABF) H1 2021 statement confirms the effects of store closures and trading restrictions across the Primark estate – with retail revenues down 40% in the period. Non-retail segments were stronger year-on-year (yoy), recording +30% profit growth in aggregate, while cashflow was better than expected, prompting reinstatement of the dividend."

"Management anticipates 68% of retail selling space to be open by the end of April (previously 83%) – increasing to 79% including stores with restricted trading. Reflecting the lag in store re-openings and the increase in commodity inflation in H2, we will pare our FY 2021 profit estimates by low- to mid-single digit." [Pic: ©Qi ZHI/123RF.COM]

© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Retail news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.

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