27th Feb 2023 17:48
(Alliance News) - interactive investor on Monday praised the "idiosyncratic nature" of Associated British Foods PLC, after the company listed its annual guidance.
All-in-all, the FTSE 100 constituent now expects annual adjusted operating profit and adjusted earnings per share to be "broadly in line with the previous financial year". AB Foods, which ends its financial year in September, had previously expected profit and EPS below the previous financial year's GBP1.36 billion and 131.1 pence, respectively.
Head of Markets at interactive investor Richard Hunter said: "In all, the idiosyncratic nature of the group continues to play into the hands of AB Foods. A diversified range of businesses gives the group any number of levers to pull depending on economic cycles, while Primark is on the way to cementing its place as the company’s jewel in the crown."
Hunter added that its shares have "certainly enjoyed a strong run of late."
Shares in AB Foods closed 2.2% higher at 1,989.80p each in London early on Monday, among the best blue-chip performers. Over the last six months, shares were up 29% higher. Over the last twelve months, shares were just 3.6% higher.
For the first-half, AB Foods expects sales to be over 20% ahead of the last year at actual exchange rates, or over 16% ahead in constant currency.
Hunter said: "Primark remains a key driver in the group’s improving fortunes. The return of the consumer to physical shopping and the brand’s value offering are a complementary and compelling combination. While the group is understandably cautious on the immediate outlook for discretionary spending given the tough economic backdrop, for the moment the consumer is showing signs of resilience which defy the retail naysayers."
Primark interim sales are expected to be GBP4.2 billion, or 19% higher than the year before. The retail group is still facing "significant" cost pressures, but has seen more "resilient" consumer spending than previously forecast.
Hunter said: "Primark remains a key driver in the group's improving fortunes. The return of the consumer to physical shopping and the brand's value offering are a complementary and compelling combination. While the group is understandably cautious on the immediate outlook for discretionary spending given the tough economic backdrop, for the moment the consumer is showing signs of resilience which defy the retail naysayers."
For the full-year, AB Foodsnow expects Primark to achieve an adjusted operating profit margin of "above 8%", which would be weaker than the 9.8% achieved in the previous financial year.
"At Primark, we now expect an improvement to our previous expectations of adjusted operating profit in the second half as a result of higher sales and some lower operating costs," AB Foods added.
In its Food divisions, it forecasts profit to be in line with the previous year. Brands in its Food division include Allinson's flour, the Blue Dragon range of Asian food products and Kingsmill bread.
"Our Food businesses continue to seek to recover inflation through cost mitigation and price increases. For the half year, we expect both aggregate sales and aggregate adjusted operating profit to be well ahead of the same period last year, albeit at a lower margin. Due to better trading, we now expect adjusted operating profit at Ingredients to be significantly ahead of the same period last year. Adjusted operating profit at Grocery is expected to be slightly lower than last year, with inflation in input costs continuing to run ahead of pricing and cost mitigation activity," AB Foods added.
However, Hunter said: "The journey is not all plain sailing, of course, and the strength of the US dollar has had a particular impact on costs, such as freight rates and buying goods from Asia, while elsewhere labour and energy costs continue to outweigh any price increases which the group has been able to pass on to the consumer.
"Net cash is also likely to have decreased sharply from GBP1.5 billion to GBP600 million, largely driven by rebuilding Primark inventories, although on current trading the investment is likely to prove worthwhile."
Thee website also remains a work in progress, with the overall offering leaving Primark primarily reliant on physical sales rather than online sales.
By Sophie Rose, Alliance News reporter
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