Member Since 23 November 2015
Last Seen: 20 Jan '18
Posted on 20 January 2018, 12:32 AM

Primark Sales Growth Presents Stock Market Opportunities

Topics: Retail
Other Insights on Related Shares: ABF.L

Amid a general slump in retail sales in Britain between December and early January, Primark, the British low-priced high-street retail chain, managed to record a 7% sales growth during the festive season. Shoppers seemed to have snubbed other higher-priced retailer rivals, opting for the discount fashion brand as brexit-induced price squeezes bit deep into their pockets. Primark owner Associated British Foods Plc is benefiting greatly from Primark’s success, and is poised to further expand the fashion brand’s network of 350 stores, after the opening of five new stores last year.

AB Foods CFO John Bason commented that ‘Of the 20 largest retailers, our market-share growth has been the strongest over the last year’, after Primark showed strong trading figures over the sixteen weeks to January the 6th. The main sales growth drivers were the expansion of retail space and the growth in market share, siphoning off sales growth from rival fashion stores. The discount fashion store’s performance in Europe, though, was mixed, as Primark sales suffered from the unseasonal good weather in October.

Other parts of AB Foods’ business didn’t do so well, though: its sugar business, in trouble because of plunging commodity prices, saw revenues falling by 12% at constant currency. This caused the company’s share price to lose 5% at market close on Friday, despite the company as a whole posted a revenue growth of 4%. The price has come down to 2,750p, making the company relatively under priced for its potential, analysts note. The stock has a P/E ratio of 18.15 and an annual return of 10.59%, but with a potential upside of 27% and a future price estimate of 3,500p, according to Deutsche Bank. Profit opportunities are more likely in the long-term, since the share price has grown in excess of 220% in the last ten years. The typical dividend the quoted company pays out is rather low, and the yields on the stock have never strayed far away from 1.5%

Other retailers have been struggling during the festive period, traditionally a harbinger of profits, with Debenham’s UK Plc issuing a profits warning, and House of Fraser openly pleading for rent reduction as a way back to profitability. Apart from fashion, other discounters, such as Lidl UK, Aldi UK, and Steinhoff International Holdings NV’s Poundland, also did very well over the festivities. With the current climate of economic gloom and instability these companies could well become even more profitable, and present further investment opportunities.

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