Associated British Foods (ABF) has lost nearly a quarter of its market value over the past 12 months. So little wonder the market responded positively to news of a full-year earnings surge, which enabled the food and clothing conglomerate to easily outperform its fellow FTSE 100 constituents, rising by as much as 9 per cent in early trading.
The one-off benefit of a 53rd trading week effectively added two percentage points to sales numbers at ABF's discount clothing chain Primark, but like-for-like sales fell 2 per cent with "value declines in the clothing retail sector in some important markets, particularly the UK", according to management. The weak pound has continued to have a negative impact on margins domestically, as the majority of garments are purchased in dollars but sold in euros and pounds. Adjusted operating margins fell 1 percentage point to 11.6 per cent and while its buyers mitigated some of the impact, foreign exchange is likely to be "adverse in the new financial year".
Investors can draw positives from the group's sugar business, where "substantial cost reductions" meant the "profit decline of recent years has been arrested", although this was partly due to a £10m negative restatement of 2015's numbers due to new accounting standards for crops. The operational improvements came at a time when EU and world sugar prices improved, something which will be important for its Illovo Sugar business, now a wholly owned subsidiary after ABF spent £247m on acquiring the remaining stake it didn't own earlier this year. Although the Africa-focused business saw production fall due to severe drought, an improved sales mix and cost savings meant the business contributed to rising profits in ABF's sugar division.
Cost-cutting was also a key factor in the improvement in its ingredients segment where adjusted operating profits grew 24 per cent on a constant currency basis to £93m. However, the agriculture division struggled in light of dairy market pricing pressures and low pig prices. Grocery revenue was held back by commodity price deflation, although a "substantial increase" in Kingsmill volumes and strong performance of premium brands such as Allinson and Burgen helped.
Analysts at Barclays expect adjusted pre-tax profit of £1.16bn for the year to September 2017, leading to EPS of 116p, compared with £1.04bn and 106p in 2016.
| ASSOCIATED BRITISH FOODS (ABF) | ||||
|---|---|---|---|---|
| ORD PRICE: | 2,638p | MARKET VALUE: | £20.89bn | |
| TOUCH: | 2,638-2,641p | 12-MONTH HIGH: | 3,606p | LOW: 1,910p |
| DIVIDEND YIELD: | 1.4% | PE RATIO: | 26 | |
| NET ASSET VALUE: | 891p | NET DEBT: | 4% | |
| Year to 17 Sep | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 12.25 | 0.80 | 70.3 | 28.50 |
| 2013 | 13.32 | 0.90 | 74.0 | 32.00 |
| 2014 | 12.94 | 1.00 | 96.5 | 34.00 |
| 2015 | 12.80 | 0.71 | 66.8 | 35.00 |
| 2016 * | 13.40 | 1.04 | 103 | 36.75 |
| % change | +5 | +47 | +55 | +5 |
*53-week period. Ex-div: 15 Dec Payment: 13 Jan | ||||
