Associated British Foods Earnings: Full-Year Targets Still Achievable Despite Profit Miss

No-moat Associated British Foods reported interim results for the 24 weeks to March 4 (first-half fiscal 2023) with constant-currency sales growth of 17% and adjusted operating margin of 7.2% (compared with 9% for the same period last year). The adjusted operating margin fell short of February 2023 preclose trading guidance of around 8% for the fiscal first half, which sent shares down by more than 5% in early trading. Despite this, Associated British Foods reconfirmed its full-year guidance for adjusted operating profit and EPS broadly in line with the previous year, which is aligned with our forecast. We believe this is achievable given the recent normalization of key input costs such as freight and cotton and lower energy costs expected for the second half. Shares have been trading in 3-star territory after a strong recovery in recent months, but there remains more than 10% upside to our fair value estimate of GBX 2,250 after the April 25 correction.