25th Apr 2023 11:20
(Alliance News) - Associated British Foods PLC shares fell on Tuesday after the company set out cautious guidance for its key Primark high-street retail arm, amid rising costs and pressure on consumer spending.
AB Foods shares fell 3.7% to 1,993.50 pence each in London on Tuesday morning.
The FTSE 100 constituent said it is "cautious about the resilience of consumer spending", as shoppers face rampant inflationary pressure.
"We expect like-for-like sales growth in the second half, although we expect that growth to moderate from that in the first half," Chair Michael McLintock said.
For the first-half ended March 4, Primark sales were up 19% to GBP4.23 billion, reflecting "good growth in all countries".
At group level, AB Foods reported pretax profit edged up by 1.4% to GBP644 million from GBP635 million the year prior. Revenue from continuing operations jumped 21% to GBP9.56 billion from GBP7.88 billion.
Aside from Primark, diversified AB Foods operates Food and Grocery businesses, which house brands such as Allinson's flour, the Blue Dragon range of Asian food products, and Kingsmill bread.
It was its Primark guidance that spooked investors, however, AJ Bell analyst Russ Mould commented.
"Despite the impressive headline figures showing strong revenue growth, what really matters to investors is guidance for the future. On this front, there is enough cautious news to drive Associated British Foods' share price down. Management is worried about the impact of high inflation and higher interest rates on the consumer and so it is guiding for slower growth at Primark. It also says margins aren't going to improve near-term, which will disappoint many people," Mould explained.
For the full-year, AB Foods continues to expect adjusted operating profit and adjusted earnings per share to be "broadly" in line with the year prior.
For financial 2022, adjusted operating profit was GBP756 million, and adjusted EPS was 131.1p.
AB Foods declared a dividend of 14.2 pence per share, up 2.9% from 13.8p a year prior.
Broker Liberum remained cautious about the company's prospects, maintaining its 'hold' rating amid a consumer backdrop that "is still tough".
More promisingly, Liberum added: "The medium-term growth and margin story at Primark remains intact and recent cost pressures from GBP devaluation and freight costs will reversing in the near future."
Liberum has a 1,900p price target for the stock.
Shore Capital was even less perturbed. It kept its 'buy' recommendation on AB Foods shares.
"ABF has issued interim FY23 results that confirm delivery ahead of our expectations at the group level (driven by Ingredients) with Retail delivery (Primark) bang in line with our recently upgraded forecast," the broker said.
Shore expects to leave its recently upgraded full-year forecasts for AB Foods unchanged.
By Eric Cunha, Alliance News news editor
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