Shares in Primark owner Associated British Foods (ABF) cheapened 2.2% to £24.07 on Tuesday despite the fashion-to-foods conglomerate surprising investors with a return to the dividend list and flagging record sales for its discount fashion chain over the past week.
While Primark enjoyed a stunning reopening last week, Associated British Foods ‘continues to expect the profit for Primark to be somewhat lower than last year’ and also warned of a ‘softer’ second half performance to come from its food businesses following their ‘exceptional’ recent performance.
FIRST HALF PROFITS HALVE
Associated British Foods’ results for the half ended 27 February 2021 were impacted by trading restrictions, adjusted pre-tax profits halving to £319 million with a large proportion of the Primark estate temporarily shuttered through much of the period, yet CEO George Weston sounded optimistic about the future.
‘Looking ahead, with stores reopening and Primark once again becoming cash generative, our confidence is reflected in our decisions to repay the job retention scheme monies in respect of this financial year and to declare an interim dividend,’ said Weston, with the board proposing a 6.2p payout for the half.
PRIMARK STORMS REOPENING
Encouragingly, Primark delivered record sales in the first week of the re-opening of stores in England and Wales last week, with total footfall for the whole estate back to pre-pandemic levels.
Primark has consistently stuck to its guns on staying offline, even though this left the retailer without a channel to sell to consumers when Covid restrictions were at their tightest.
Unsurprisingly, big queues formed outside the clothing chain’s stores as non-essential retail reopened on 12 April.
‘Primark clearly has brand loyalty and serves a cost conscious market which is keen to get out to the shops and see and feel items of clothing before making a purchase,’ explained AJ Bell investment director Russ Mould.
‘It looks like people are not just buying essentials, as they did after previous lockdowns. They’re picking up fashion items too, perhaps anticipating a return to going out and socialising as freedoms return.’
THE EXPERTS’ VIEW
Shore Capital reiterated its ‘buy’ rating on Associated British Foods and insisted its confidence in the medium-term prospects for ABF remain undiminished.
‘Whilst only one week’s performance, the commentary around Primark’s reopening should give ABF shareholders a warm glow, in our view,’ said the broker.
‘We also note the immaturity of the Primark estate in many parts of Europe and the USA, where the operations are now profitable.’
Also sticking with its bullish stance was Liberum Capital, which stressed the Primark proposition ‘remains highly relevant and resonates even with today’s digitally native consumers’.
It believes ‘the upheaval in retail caused by the pandemic will provide opportunities to accelerate store openings and take market share’.
