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Associated British Foods PLC ABF

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Morningstar’s Analysis

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Despite Lower Primark Sales in First Half, Store Reopenings in Sight; ABF FVE Maintained

Analyst Note

| Ioannis Pontikis, CFA |

Associated British Foods reported a trading update prior to entering the close period for its interim results for the 24 weeks to Feb. 27. Primark’s sales for the half year are estimated to be GBP 2.2 billion compared with GBP 3.7 billion a year ago, or about 40% down, behind the 30% decline expected by VA consensus. The group expects Primark's adjusted operating profit to be “marginally above break-even” versus GBP 441 million a year ago, as expected. At the time of writing, ABF is trading in 77 stores, representing 22% of its retail selling space. Nonetheless, it still plans to add a net 0.7 million square feet of retail space, which we think reflects management's confidence in the brand's ability to recover, in line with our expectations (0.73 million square feet in our model). We do not expect to make significant changes to our GBX 2,350 fair value estimate. With increased uncertainty around restrictions and the stock already trading in 3-star territory, we would advise investors to wait for a better entry point.

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Company Profile

Business Description

Associated British Foods PLC 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 350-store 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 14, 2020
Stock Type
Employees 133,000