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Associated British Foods PLC ABF

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Primark LFL Sales Still Below Precoronavirus Levels; Inflationary Pressures in H1 for Food Business

Ioannis Pontikis, CFA Senior Equity Analyst

Analyst Note

| Ioannis Pontikis, CFA |

Associated British Foods reported a trading update for the 16 weeks to Jan. 8 (first quarter of fiscal 2022) with Primark like-for-like, or LFL, sales 11% below two years ago, primarily the result of lower footfall from the rapid rise of omicron cases. In the U.K., sales were 36% higher versus last year, partly due to easier comparables (widespread closure of stores in the U.K. and Europe). Like-for-like sales in continental Europe were 14% below two years ago with total sales below 2% on a two-year basis due to an increase in retail selling space (12%). The U.S. segment had a standout performance relative to other regions with 4% like-for-like sales growth on a two-year basis and total sales ahead 37%, reflecting new store openings. The ex-Primark business (grocery, sugar, agriculture and ingredients) saw revenue climbing by 6% at constant currency with management noting inflationary pressures in raw materials, commodities, supply chains and energy. On guidance, the company expects reduced adjusted operating profit margins in grocery and ingredients at the half-year due to the lagged impact of price increases and a recovery of margins by year-end. Management also continues to expect significant progress at the half- and full year in adjusted operating profit and adjusted earnings per share for the group, in line with our expectations. We maintain our GBX 2,560 fair value estimate for Associated British Foods. Shares look cheap.

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Company Profile

Business Description

Associated British Foods is a diversified international retail, food, and ingredients group with 130,000 employees and operations in 50 countries across Europe, southern Africa, the Americas, Asia, and Australia. The group sells branded grocery products, grows and processes sugar, supplies farmers with crop input and animal feed, and runs the popular Primark clothing retail chain. It also supplies ingredients like bakers' yeast, enzymes, lipids, and cereal specialities. Some 40% of sales are in the U.K., and Primark generates more than half of the firm's operating profit.

10 Grosvenor Street, Weston Centre
London, W1K 4QY, United Kingdom
T +44 2073996500
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings
Fiscal Year End Sep 18, 2022
Stock Type
Employees 128,000