Credit Suisse 'confident' on AB Foods following improved third quarter
As retail arm Primark continues its top-line growth while managing to rebuild its margins, analysts at Credit Suisse were reassured that parent company Associated British Foods to grow profits in spite of the volatility affecting its sugar business.
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After a "tough" first half, Primark enjoyed better trading throughout its third quarter, despite tougher comparative period last year. Overall sales gained 7% and like-for-like sales slipping just 0.5%, growing "well ahead of a flat market" and taking share from peers such as New Look, Arcadia and Matalan.
Credit Suisse was "confident" about Primark's margins, with a stronger like-for-like performance, beneficial hedge rates and lower than expected markdown on spring/summer stock set to boost AB Foods' position, confident pre-tax profits can be grown an average of 11.8% per year over the next three years.
The Swiss investment bank left Primark's full-year EBIT of £829m unchanged, same is it did with AB Foods' 3,300p target price and 'outperform' rating. Analysts, viewing sugar as "increasingly volatile" following the end of European sugar quotas, are increasingly valuing ABF on an ex-sugar basis.
The analysts pointed out that other parts of the business seemed to be trading "largely as expected" with its grocery and ingredients units both gaining 4%, while its agriculture business improved 12% and sugar, as expected, declined 17% due to the weakness of global sugar prices.
AB Foods was "naturally cautious" about the impact on profits this year and particularly next, analysts acknowledged, although overall expectations of progress for operating profits and EPS remained unchanged.