Associated British Foods (ABF) reported 32% growth in adjusted operating profit for full-year 2024, with the grocery division reporting a 14% increase, while its retail division registered 51% growth.
According to ABF chief executive George Weston, “[The company witnessed] a year of very strong financial and operational progress across the group.”
Weston added, “We delivered a substantial improvement in profitability, excellent cash generation and strong returns as a result of consistent, multi-year investment, and a return to some normality in our markets and supply chains.”
Here is how analysts at AJ Bell, Shore Capital and Global Data responded to the company’s full-year performance.
AJ Bell
According to AJ Bell, ABF is a company that knows what it is doing. It understands its audience – particularly for its Primark chain – and it makes sensible long-term decisions to help drive long-term growth.
‘What is notable is the company achieved a strong set of results despite Primark in the UK being affected by a wet summer, which, for a business reliant on footfall, was less than ideal. This was made up for by strong progress in overseas markets, lending credence to the idea the Primark offering can be a success outside of its domestic market,’ AJ Bell noted.
‘Primark does things differently to most retailers. It may not do online deliveries, but its recent digital strategy of allowing click-and-collect sales helps to get more customers through the doors, where they can then make additional impulse purchases.
‘The agriculture, grocery, and ingredients businesses all chalked up a solid performance, but the sugar arm left a bitter aftertaste, thanks to problems in Europe, which look set to have a continuing impact in the current financial year. The company has long heralded the benefits of its diversified model, which was important during the pandemic, when Primark stores were shuttered.
‘The company’s enviable financial position allowed for some significant generosity to shareholders while still investing for future growth.’
Shore Capital
Clive Black of Shore Capital believes that ABF has a “strong proprietary branded grocery assortment that is somewhat overlooked” in terms of the positive qualitative investment features of the group.
“In this respect, it remains encouraging to us to see management report good demand for its broad assortment across its markets, headlined by Twinings Ovaltine, with more than satisfactory all-round performances also recorded in the main [and] Allied Bakeries in the UK remaining a headwind in Australasia, the UK and the USA.
“For FY25F, noting raised guidance at its September 2024 TS, we look for FY25F grocery EBIT approaching £500 million – £490 million – marginally lower, year on year.”
In the ingredients segment, AB Mauri continued to lead the line, with growth across its markets, Shore Capital noted.
“In FY25F, ABF should also be harvesting the benefits of H2 FY24A acquisitions of Omega Yeast Labs in the USA and Mapo in Italy. For FY25F, we may need to downwardly revise our ABF ingredients EBIT forecast of [approximately] £250 million on the £219 million FY24A base.
“There was a distinctly bitter taste to the ABF FY24A TS, when the firm highlighted to rapid downturn in the European sugar market, leading the firm to anticipate a notable year-on-year EBIT downturn FY25F, which took the wind out of the group’s shares in the intervening period.
“The near UK mono-climate is weighing upon the industry’s trading performance and profitability, for which ABF’s core assortment is at the heart of the challenge through a weakness in its feed activities, albeit specialty and additive business has been firmer, the UK dairy trade being better, too. For FY25F, ahead of the analyst meeting, we anticipate a similar agriculture EBIT outcome: £42 million on £41 million in FY24A.”
Global Data
GlobalData observed that store openings continued to prop up Primark’s top line, as consumers remained cautious about shopping.
Alice Price, apparel analyst at GlobalData, stated, “Primark rounded off FY2023/24 with like-for-like sales growth of just 1.2%, reflecting a much softer performance than the prior year. This comes as consumers have stayed cautious about making new fashion purchases, as the economic outlook remains uncertain, while many have switched to higher-quality retailers or resale platforms, such as Depop and Vinted, to achieve greater value for money.
“Instead, Primark’s sales have been propped up by store expansion across Europe and the US – having opened 22 new stores across the period – enabling total revenue to rise [to] a more palatable 4.9%, to reach £9.4 billion. Adjusted operating profit margin increased 3.5 percentage points on FY2023/23, to 11.7%, supported by the annualisation of prior-year price increases, alongside lower material and freight costs.
“Primark continues to focus on store expansion to accelerate growth, having signed an agreement with Alshaya Group in September 2024, to explore the opportunity to open stores in the Gulf Cooperation Council, which comprises countries such as Qatar, Bahrain, and Saudi Arabia.
“The retailer also remains committed to strengthening its omnichannel proposition, with traffic to its website having increased 23% across all markets in 2024, with between 15% and 25% of visitors utilising its stock-checker facility.
“While, in the UK, Primark now offers its click-and-collect service in 87 stores – with plans to expand it across all of England, Wales and Scotland by the end of 2025 – it has not yet shown any indication of rolling out this service outside of its home market. This would give it an edge over store-only value competitors, such as Pepco and Kik in Europe, and provide more of a level playing field against omnichannel players such as Target and Walmart in the US.”
