Associated British Foods: Strong Top Line Drives Fiscal 2023 Profit Guidance Update

No-moat Associated British Foods published a nine-month trading update with group revenue up by 17% year to date and 16% in the third quarter in constant currency. Management also updated guidance for fiscal 2023 adjusted operating profit and EPS, which are now expected to be slightly ahead of the prior year, compared with “broadly in line” previously. We believe this increase in absolute profitability will be mostly driven by the top line as the margin is still expected to be materially below the prior year given the strategic decision to moderate price increases at Primark. We don’t expect this update to be too material to our valuation (which calls for adjusted operating profit in line with the prior year and EPS slightly ahead), and we reconfirm our fair value estimate of GBX 2,250.