Sweet and sour from ABF

Un­even pic­ture for di­ver­si­fied food, ingredients and re­tail con­glom­er­ate

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FOODS-TO-FASH­ION con­glom­er­ate

As­so­ci­ated Bri­tish Foods’ (ABF) saw its shares fall 3.7% to £32.20 de­spite the de­liv­ery of bet­ter-than-ex­pected full year re­sults on 7 Novem­ber, with ad­justed pre-tax profit tick­ing 22% higher to £1.31bn.

In­vestors were un­der­whelmed as ABF con­firmed it will re­duce the size of three Pri­mark stores in the US and added that higher vol­umes and lower costs ‘will only par­tially mit­i­gate the ef­fect of much lower EU (sugar) prices’.

Im­pres­sive an­nual fig­ures re­flected a strong re­cov­ery in sugar prof­its, growth at Twin­ings Oval­tine, not to men­tion mar­ket share gains from dis­count fash­ion chain Pri­mark.

But the re­tailer’s muted 1% like­for-like growth and news Pri­mark’s first half mar­gins will be squeezed by the pound’s weak­ness ver­sus the US dol­lar, took the shine off the num­bers.

Pri­mark’s op­er­at­ing mar­gin this year should be sim­i­lar to last year’s lev­els, de­spite the weaker ster­ling/US dol­lar ex­change rate, as the re­cent strength­en­ing of the euro against the green­back has a ben­e­fi­cial trans­ac­tion ef­fect on eu­ro­zone mar­gins.

Liberum Cap­i­tal ar­gues that ‘ABF of­fers in­vestors com­pelling ex­po­sure to sec­u­lar growth trends in re­tail over the next 10 years’ and ‘mar­gins should con­tinue to ex­pand from full year 2018 on­wards as the FX im­pact abates and the group benefits from ma­tur­ing stores and op­er­at­ing lever­age.’ (JC)

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