12th Sep 2023 11:50
(Alliance News) - Associated British Foods PLC shares surged on Tuesday after it announced that its performance in the current financial year, ending September 16, has been "slightly better" than previous expectations.
AB Foods is a London-based fast-fashion retailer, via the Primark store chain, and food manufacturer. Its shares were up 7.9% at 2,158.00 pence on Tuesday in London, making it the top performer in the FTSE 100 shortly before midday.
The firm said that in its Food arm, it has continued to see sales growth, particularly in Grocery and Ingredients. It also noted a slightly better-than-expected performance in Sugar.
In its Retail arm, AB Foods noted strong fourth-quarter sales growth and said it now expects sales to be around GBP9.00 billion, approximately 15% ahead of GBP8.00 billion in sales last year.
As a result, full-year adjusted operating profit is now expected to be "moderately ahead" of the GBP1.44 billion achieved in the previous financial year for the group as a whole and "strongly ahead" for the food division.
Clive Black and Darren Shirely at Shore Capital said the trading update was a "good one in aggregate" and showed "strong signs" for financial 2024.
"The group continues to trade well, managing inflation, recovering cash margin and continuing to drives sales in a challenging macroeconomic environment," AB Foods said.
As a result, Shore nudged up its financial 2023 adjusted earnings per share forecast for the company to 142.9p from 140.0p previously. In financial 2022, AB Food had reported adjusted EPS of 131.1p.
Shore offered a more substantial upgrade for financial 2024, taking its EPS forecasts to 164.5p from 151.7p previously.
Richard Hunter, head of markets at interactive investor, said AB Foods is an "unusual" group, with its "idiosyncratic nature" covering many of the economic cycles.
"This diversification came into its own as Primark suffered during the pandemic and, with that part of the business now firing on all cylinders, the current performance of the likes of Grocery, Ingredients and Agriculture are a welcome bonus, with a much stronger outlook for Sugar following previous production problems," he said.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, agreed, saying the "diversification" of AB Foods was an "enviable" asset to have, with "stellar brands" like Twinings helping to "keep things moving" regardless of how many Primark dresses are heading to the checkout.
However, both analysts pointed to the strength of Primark despite the current constraints on consumer spending in the UK amid the cost-of-living crisis.
"Primark's outlook is poised to benefit from a number of factors swinging in its favour. Lower material and freight costs, favourable exchange rate movements and price increases are likely to offset its own input costs inflation, with the expectation of a strong recovery in adjusted profit margin in the next financial year from the current number of around 8%," ii's Hunter said.
"Of course, any further deterioration in the economic backdrop could weigh further on consumer sentiment, as central banks continue the attempt to put the inflation genie back in the bottle. Even so, one thing which has become apparent over recent months and has been reinforced by this update is the British insistence on taking holidays, as evidenced by improving airline and travel numbers elsewhere, which is often accompanied by a revamp of the wardrobe," Hunter said.
AB Foods will announce its full results on November 7.
By Heather Rydings, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
AB Foods