Primark soldiering on to bring in ABF profits
ASSOCIATED BRITISH FOODS (ABF) released a third quarter trading update on Thursday. As the name suggests, the group includes various food-based divisions, from sugar to grocery, and including brands like Ovaltine hot drinks, Jordan’s cereals and Kingsmill bread.
But what the name doesn’t tell you is the majority of profit comes from the Retail business, Primark.
Sales at the value-focused chain have risen 4 per cent year-to-date, with increased sales from new openings partially offsetting a decline in like-forlike sales.
As other shops see sales drop, Primark’s UK market share continues to rise. That could reflect the wider uncertainty around, as customers save the pennies by trading down and adopt a more value focus.
And it’s much the same picture across Europe, with Spain, Portugal, France and Italy all delivering improved performances. All the while, the steady expansion in the US continues to progress nicely.
It’s not just Primark’s top line that’s growing. Operating margins are improving, too, on account of better buying and lower markdowns.
However, rising profits at Primark are only offsetting the damage done by a disappointing year for the sugar business. The end of sugar quotas in the EU resulted in excess supply and lower prices, denting performance. As a result, the group remains on track to meet existing full year guidance, with earnings per share set to be only in line with last year.
Longer-term, Primark’s ambitions, particularly in the US, mean analysts are hopeful of growth resuming next year. That explains why the shares are valued at a premium to other UK retail names, at 16.6 times expected earnings.
Overall, we think the group has a good chance of success. And with a dividend yield of 2.1 per cent, investors should at least get paid to wait and see if it can fulfil its potential.
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