Associated British Foods, the owner of the Primark retail chain and Twinings Tea, has said that it is anticipating ‘good profit growth’ in its Grocery, Agriculture and Ingredients divisions, however its sugar business is likely to find the going tougher.
The firm today issued a trading update for the 40 weeks to 23 June 2018, in which it said that the revenue momentum of the first half continued in the third quarter.
Group revenue for the period was 3% up on the same period last year at constant currency and 2% ahead at actual exchange rates.
‘Excluding Sugar, sales growth from continuing businesses was 6% ahead of last year at constant currency and 5% ahead at actual exchange rates,’ it said.
The AB Sugar business saw its revenue down 17% in its most recent quarter, the company said, with ‘significantly lower prices’ affecting its UK and Spanish businesses.
‘As a result, our expectations for sales and profit at AB Sugar, both for this financial year and next, are lower than previously expected,’ the company said.
Primark Performance
Sales at the group’s Primark retail division were 6% up on the previous year at constant currency levels, and 7% ahead at actual exchange rates, driven largely by increased retail selling space, however, the group said that like-for-like sales for the most recent quarter were up on those recorded in the first half of the year.
Retail selling space at Primark increased by a net 0.8 million square feet since the beginning of the financial year.
In the most recent quarter, seven new stores opened: Munich in Germany, Metz in France, Antwerp in Belgium, Valencia in Spain, Tilburg in the Netherlands, Burnley in the UK and in the Westfield London shopping centre at White City.
Strong Sales
‘Sales from our first four stores in Italy continued to be very strong,’ Associated British Foods said in a statement. ‘The UK business performed well and delivered growth in like-for-like sales. This growth built on the strong comparative performance in the same period last year, but was lower than that achieved in the first half.
‘We expect margin in the second half to be well ahead of the first half and last year with the continued benefit of better buying and also the beneficial effect of the weakening of the US dollar exchange rate on purchases.’
Weaker Outlook
As analyst Darren Shirley of Shore Capital explained, "Whilst ABF has reiterated guidance for FY2018 with a Primark margin recovery offsetting pressure from low EU sugar prices, we harboured concerns of the Sugar impact on FY2019 expectations. Unfortunately, post speaking with management we are tweaking down FY2018 expectations and downgrading our FY2019 EPS by c7% to 133.4p (broadly flat yoy).
"On our revised forecasts, ABF stock is trading on a September FY2019 PER of 19.5x, and EBITDA multiple of 9.9x. We remain positive on ABF and reiterate BUY, though concede our stance is now of a medium to long nature rather than one of short term appreciation."
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
