Shares in Associated British Foods (ABF) were the biggest FTSE 100 risers on Thursday, marked up 4.9% to £23.25 as the foods-to-fashion conglomerate raised annual profit guidance amid an improved outlook for Primark and its sugar division.
Following an encouraging sales performance by Primark since stores reopened, the conglomerate has upgraded its full year sales forecast for the cut-price clothing chain.
As a result, the group now sees adjusted operating profit for the year to September 2021 (excluding the repayment of job retention scheme monies) ‘broadly in line’ with last year’s £1.02 billion, comfortably ahead of the £845 million Shore Capital was calling for.
PRIMARK POWERS AHEAD
With the reopening of all retail stores and the opening of seven new stores, Primark’s sales surged 207% higher to £1.6 billion in the third quarter to 19 June, ahead of management expectations and comfortably ahead of last year’s lockdown-impacted third quarter sales of £0.6 billion.
‘This quarter, sales in the reopened stores were ahead of expectation in all markets,’ said Associated British Foods, ‘a number of new sales records were set and the like-for-like performance was much improved on earlier periods during this pandemic reflecting an increase in both confidence and willingness to spend by our customers.’
The company added that ‘the appeal of our value-for-money offering has been evidenced by the number of customers that have returned to shop in person in our stores, across every one of our markets, each time we have reopened post-lockdown. This reopening has also seen a resurgence in demand for fashion across womenswear and menswear, as customers start to step out of lockdown leisurewear.’
SWEET SUGAR SHOWING
With a boost from vaccinated shoppers flocking back to Primark, Associated British Foods cash generation in the quarter was both ‘ahead of expectation and much stronger than in prior years’.
Elsewhere within the diversified conglomerate, third quarter sugar revenues were ‘significantly ahead’, driven by strong volumes in Illovo and China and higher prices in Europe and Africa.
Ingredient revenues were in growth, agriculture sales rose by 10% but as predicted, grocery sales were down 3% year-on-year as the business lapped strong lockdown-boosted comparatives.
THE SHORE CAPITAL VIEW
Shore Capital insists Associated British Foods boasts ‘high quality assets, brands and market positions, backed up by a strong financial constitution’.
And following this ‘excellent’ third quarter update, the broker reiterated its ‘buy’ stance on the shares, ‘seeing the relatively liquid FTSE 100 stock as a basis for strong long-term value creation and return.’
