More on Associated British Foods
Associated British Foods trading statement
Associated British Foods seems to have had a fairly good second half despite the continuing low sugar prices. Primark remains the main driver growth with like-for-like sales up 9%. With continued opening of new stores the organic growth rate will be significantly above this, and the Littlewoods acquisition (on which we have previously commented) will add even more to sales: Primark should now be ABF’s biggest business as well as its fastest growing.
Primark is performing very well given the weakness of consumer spending. We attribute this largely to its low prices which both means that existing sales are more resilient, and it benefits from consumers trading down from higher price retailers.
The problems with sugar were known and overall the remaining businesses seem to be performing in line with market expectations and any downside surprises in the full year results appear unlike. Sugar will clearly become less profitable in the longer term, one the new EU sugar regime comes in.
With a prospective PE of 16× (at 845p) Associated British Foods is not cheap against either of the two sub-sectors it operates in (food producers and discount clothing). However, thanks to Primark, it is producing much better growth than either sector. Primark would be a bargain at this valuation, unfortunately the other businesses look much less attractive.
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