9th July 2015
Associated British Food, the parent company of Primark and grocery brands like Kingsmill, has posted a slim increase in group revenues ths morning. Helal Miah, investment research analyst at The Share Centre, explains what it means for investors…
This morning, ABF produced a trading update for the 40 weeks to 20 June 2015. With results pretty much in-line with expectations, the group’s revenue increased by 2% on a constant currency basis. Investors should note that this was however flat when taking into considering the strength of the pound and the dollar. If foreign exchange rates stay at current levels, the full year impact is expected to be in the region of £25m.
Operationally, things are looking good for the company. The Twinings and Ovaltine brands are doing well and there is a current focus on rebuilding the Kingsmill brand, which should take more prominence on Tesco shelves. The sugar business benefitted from a large UK crop, but production in the coming years will fall as the amount of land allocated for sugar beet has fallen in excess of 20%. This, along with lower European sugar stocks, should in theory support a recovery in the price of sugar.
Interested stakeholders should acknowledge that Primark, the group’s value fashion chain, continues to perform very well with sales up 9%. Furthermore, the retailer’s expansion is continuing with 287 stores now open, with many new stores in Europe.
While Primark performs well and food related businesses recover, we maintain a medium risk ‘hold’ recommendation for Associated British Foods since the shares currently trade at 31x earnings, which is higher than the group’s sector average. However, we would not discourage investors from buying on dips.