More on Associated British Foods
Associated British Foods
Both of the company’s largest two food business, grocery (34% of operating profit) and primary food (40% of operating profit) improved both profit and margins on better demand across a range of products.
Sales in the ingredients business (8% of operating profits) fell as the result of an exit from some businesses and the strength of sterling. Even here margins improved, partly as a result of the exit from low margin businesses.
Its non-food business, Primark (22.8% of operating profits), the discount clothing retailer, produced the strongest sales growth (+14.1%), and profit growth (+22.7%) as well as the biggest increase in profits (+£20m) - although the much bigger primary foods business added almost as much in absolute terms (+£17m).
Primark is clearly very well positioned with sales growth and margin improvement (+89 basis points) continuing despite increasing competition at the bottom end of the clothing market (as demonstrated by the poor performance of the likes of Matalan).
The other businesses are similar is so far as they have grown, and improved margins, despite increasing competitive pressure on prices.
The PE of 14.5× current year earnings (at 715p) is high assume continued strong growth which seems a lot to expect given the competitive environment in both food and clothing retail, although the strength of the businesses (evident from this year’s performance) does provide some justification for this.
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