05 November 2024
If you are covering Associated British Food’s annual results please find a comment below from Chris Beckett, head of equity research at Quilter Cheviot:
“The backdrop to today’s results from ABF is its profit warning issued in September. However, the results have come in slightly better than what was guided in that warning, bringing a sense of relief to the share price.
“The headline figures are impressive, with a 38% growth in profit and a 50% increase in dividend on a 2% rise in revenue. This indicates a strong margin recovery and robust cash generation, which is funding a special dividend and a £500 million buyback.
“Primark remains the focal point for ABF, accounting for about half of the sales and three-quarters of the value. Short-term sales at Primark have exceeded expectations, with second-half like-for-like sales turning slightly positive at 0.5%, contrary to the anticipated 0.5% decline.
“Favourable weather in September boosted UK trading, though October was less favourable. Primark’s margin of 11.7% was slightly better than expected, and the company anticipates maintaining this margin next year despite increases in minimum wage and national insurance costs. It plans to offset these through efficiencies and self-service tills, which is likely to be a common strategy among retailers post-budget.
“The rest of ABF’s guidance aligns with predictions. Sugar profits are expected to drop significantly this financial year but should recover to 2024 levels by 2026, reflecting the cyclical nature of the sugar business.
“ABF’s stock trades at 12 times earnings with a 3% yield. While it is a solid business, it faces several discounts – conglomerate, family-controlled, and commodity-related. Additionally, there is ongoing concern about Primark’s maturity in its main markets. Although management sees significant growth potential in store expansion, investors remain cautious about its success in new markets compared to its established presence in the UK, Ireland, and Western Europe. The US market is performing well, but Primark is taking a measured approach to expansion."
