07 November 2023
If you are covering Associated British Foods’ latest financial results, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Despite the inflationary cost pressures being suffered across the business, Associated British Food has posted relatively strong results this morning, coming in slightly better than the guidance provided in its pre-close update in September. Primark in particular has done a little better than expected, with a margin of 8.2%.
“While the results themselves are generally as expected, the real positive is management guidance. Good growth is anticipated in the coming months, driven by new store openings and modest like for like sales. ABF expects to be able to take limited pricing, but the increase is primarily expected to be driven by proposition sales volume.
“The stock is up more than 5% this morning, and this has largely been driven by margin improvement. ABF is anticipating a substantial recovery in its gross margin, which is expected to drop through to a strong operating margin recovery. The operating margin for Primark is expected to get back above 10%, rebounding back to its 2022 level or even slightly higher.
“Overall, ABF’s results this morning have proven rather positive. The food businesses have coped well in this high inflationary environment by passing on the majority of costs, and the retail business has weathered the cost of living crisis comparatively well. Where we have seen discretionary spending for low end retailers come under pressure elsewhere, this has not been the case with Primark and it has delivered impressive numbers given the environment it is currently operating in.”
