Recovery Continues in H1 for ABF, but Lower-Margin Fiscal 2022 Guidance Due to Cost Inflation

Following its preclose trading update in February 2022, Associated British Foods, or ABF, reported interim results for the 24 weeks to March 5 (first-half fiscal 2022) with group EBIT of GBP 706 million, of which GBP 414 million was contributed by Primark for an 11.7% adjusted operating margin. Revenue for the group was up 25% (up 28% in constant currency), still about 5% lower than fiscal 2020 levels. Management continues to expect significant progress for the year in adjusted operating profit and adjusted earnings per share for the group, in line with our expectations. Within this though, Associated British Foods now expects a greater reduction in the second-half operating margin for Primark with the full-year margin expected at around 10% versus 11.4% in our model. Similarly, for the group's food businesses, the company now expects a greater margin reduction for the full year due to significantly higher commodity and energy price inflation that takes time to pass on to consumers, with a full run-rate margin recovery expected in the next financial year. We maintain our fair value estimate and no moat rating for Associated British Foods.