23 January 2024
If you are covering the latest financial results from Associated British Foods, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“Associated British Foods, the parent company of Primark, delivered a fairly weak set of numbers this morning as it has been buffeted by the tough environment for discretionary spending and the unpredictable nature of the British weather. Primark itself is seeing a slowdown with sales and volumes numbers not growing at the same rate as they did last year. With a backdrop of weak retail sales across the market, aside from food, the results aren’t too bad but they are worse than the market expected and thus this needs to be watched closely to see if there is any rebound. ABF themselves kept the guidance in tact so signs are pointing to this being just a small blip. Notably too, Primark has benefitted in recent weeks with the cold snap experienced across the country given the winter fashion line remains for sale.
“The grocery businesses look just fine and have benefitted from a strong Christmas period. There is a clear trend that as a result of the cost of living crisis, discretionary spending by consumers has been cutback across the board, except when it comes to groceries. People have been prepared to pay for quality and this is helping branded goods keep up with the challenging environment.
“The economic picture remains to be clouded however, particularly with the disruption we are seeing in the Red Sea. ABF expects any price rises as a result of this issue to be absorbed as performance at Primark improves. However, any resolution to the conflict would clearly be in ABF’s interests too. For now, the business is performing okay and its future remains solid. It is a business that has experienced a lot of growth in the last decade and as such there could be limited upside potential for investors. That said, it remains a quality business and is navigating a troubling backdrop well.”
