Associated British Foods (ABF) continues to reap the rewards from shopping phenomenon Primark. Adjusted operating profit is expected to rise yet investors are focusing on the underperforming groceries division.

Grocery revenues are expected to be level with last year, but adjusted operating profit is anticipated to be lower in the year to 30 September 2017. The news has acted as a drag on the stock, down 3.6% to £31.51.

Margins at Allied Bakeries are suffering as a ‘very competitive UK bread market’ and inflationary cost pressures hit margins.

WHY IS PRIMARK PERFORMING WELL?

Liberum analyst Robert Waldschmidt says Primark’s full year margins in 2018 are expected to be similar to the prior year.

He flags that strong demand and favourable weather has increased demand and reduced markdowns, helping to offset the impact of the weaker pound against the US dollar.

Sales at Primark for the year to 16 September 2017 are expected to rise 13% when currency fluctuations are stripped out thanks to increase retail selling space.

Operating profit is expected to rise to £1.4bn in the year to 30 September 2018 and £1.56bn in 2019. The company currently trades on 21.8 times forecast earnings per share for 2018.


Issue Date: 11 Sep 2017