Grocery-to-retail conglomerate Associated British Foods (ABF) delivered investors a double helping of good news with consensus-beating first-half results and a 46% increase in the interim dividend.

In response the shares jumped 9% to £27.50, topping the FTSE 100 leader board and returning to their pre-pandemic peak.

BETTER ACROSS THE BOARD

The group posted a 5% increase in revenue to £9.73 billion on a constant-currency basis but the big surprise was the strength of margins with operating profits leaping 46% from £684 million to £951 million against consensus expectations of a 25% improvement.

That same increase fed through to earnings per share, which rose from 67p to 87.4p, allowing the firm to increase the interim dividend from 14.2p to 20.7p which is not far short of the total dividend for 2021.

‘This is a very strong set of financial results, as we are now benefitting from the restoration of some normality in our markets and in our supply chains,’ commented chief executive George Weston.

‘Improvements to the group's operational performance, driven by the investments and strong execution over the last few years, are now becoming visible. Group profit margins are recovering accordingly to more normal levels.’

The retail division reported a 7.5% increase in revenue to £4.5 billion thanks to 2.1% like-for-like growth and greater selling space, while operating profits rose 46% to £508 million as margins improved.

The grocery division saw a 5% increase in revenue and a 39% jump on operating earnings due to a strong US performance and smaller losses at Allied Bakeries, while sugar, ingredients and agriculture also contributed higher profits.

The group now expects higher full-year profits and cash generation with Primark’s store expansion programme set to drive volume growth despite a ‘soft’ consumer environment, sugar margins to continue improving and agriculture to benefit from prior-year acquisitions.

EXPERT VIEWS

Clive Black, vice-chairman and head of consumer research at Shore Capital, described the results as ‘a significant beat’ with the firm looking to the future ‘with confidence driven by all divisions’.

Black provisionally raised his 2024 EPS (earnings per share) target from 180p to between 190p and 195p saying ‘there is a lot to like for the foreseeable future’ at AB Foods.

Liberum analysts Anubhav Malhotra and Wayne Brown suggested the better-than-expected results ‘ensure potential for further cash returns via specials and or buybacks’ this financial year and maintained their buy recommendation.

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