After solid half-year results, management at
The sugar business saw operating profits climb 59 per cent to £172m, largely underpinned by excellent growing conditions that meant record beet yields in the UK and Spain and a higher sugar content in its crops. Investment in its factories over the past few years meant extraction rates were higher, too. With the benefit of strong EU sugar prices this will mean full-year sugar profits will be well ahead of last year, despite substantially lower sugar profits in China, where prices weakened steadily throughout 2011.
The outlook for the group's clothing retail business, Primark, is also improving. Profits in the first half were essentially flat at £154m despite a 15 per cent increase in total sales to £1.6bn. Operating margins were hit by the rising cost of cotton, falling from 10.7 per cent to 9.5 per cent. But with cotton prices now retreating from last year's record highs, management said margins would recover in the second half, resulting in good profit growth. After opening 1m sq ft of selling space over the past year, the pace of expansion is set to be maintained, especially in Europe where five new stores are planned in the second half alongside the opening of a new purpose-built depot in Germany.
Trading conditions in AB Food's grocery and ingredients businesses proved far tougher, with profits in both divisions falling heavily as a result of rising inflation. When combined, these units account for 40 per cent of group revenues. However, retail and sugar should more than compensate for this weakness and broker Investec Securities expects full-year underlying pre-tax profits to rise 16 per cent to £972m, giving EPS of 84.5p (up from £835m and 74p last year).
|ASSOCIATED BRITISH FOODS (ABF)|
|ORD PRICE:||1,233p||MARKET VALUE:||£9.76bn|
|TOUCH:||1,232-1,234p||12-MONTH HIGH:||1,246p||LOW: 936p|
|DIVIDEND YIELD:||2.1%||PE RATIO:||18|
|NET ASSET VALUE:||736p*||NET DEBT:||26%|
|Half-year to 3 Mar||Turnover (£bn)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
Ex-div: 6 Jun
Payment: 6 Jul
*Includes intangible assets of £1.85bn, or 234p a share
AB Food's broad spread of business and markets mean it's always a steady performer. But with analysts already forecasting a 14 per cent increase in EPS, and the shares trading on a forecast PE ratio of 14.5 and close to a record high, we think the good news is already in the price. Hold.
Last IC view: Fairly priced, 1.138p, 8 Nov 2011
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