AB Foods reports bumper Christmas but Primark disappoints

12th Jan 2017 07:19

(ShareCast News) - Primark owner Associated British Foods reported group revenue from continuing operations 10% ahead of the same period last year at constant currency, though flat like-for-like sales at Primark disappointed investors.In a trading update covering the 16 weeks to 7 January, the FTSE 100 firm said that as a result of the weakening of sterling in late summer last year, sales from continuing operations at actual exchange rates were strongly ahead with a 22% increase.But while total sales at the Primark retail division were 11% ahead of those reported last year at constant currency driven by increased retail selling space, and were 22% ahead of last year at actual exchange rates, like-for-like sales were effectively flat."On a comparable week basis, total retail sales at constant currency were 12% ahead and 23% ahead at actual exchange rates," ABF's board said in a statement."The increase in average retail selling space in this 16 week period, compared with the same period last year, was 12%."It said Primark in the UK performed well during the period, with like-for-like sales said to be "good" and market share increasing.Like-for-like sales for the group were held back by declines, albeit smaller than last year, in Germany and the Netherlands, the latter particularly affected by the rapid increase in selling space.New stores opened in the period traded strongly and the Primark business in the US continued to develop."As forecast, the operating profit margin will decline as the year progresses reflecting the strength of the US dollar on input costs. Foreign exchange contracts are now in place for most of the remaining purchases for this financial year."At AB Sugar, revenue from continuing operations was 22% ahead of last year on a comparable basis at constant exchange rates.At actual exchange rates revenue was 38% ahead, with higher sugar prices, increased production in Africa, and further benefit from the performance improvement programme delivered a substantial increase in profit."With 2016/17 forecast to be a second year of global sugar deficit, world prices are much higher than last year."A tightening of EU stock levels has strengthened domestic prices across the region and in Africa, higher world prices and the strength of the US dollar have resulted in higher domestic and regional prices."In grocery, ABF said it made further margin progress.Twinings continued to achieve strong sales growth with reportedly good performances in the UK, North America and Australia, and Ovaltine performed well in Asia.Margins at George Weston Foods in Australia were much improved, while Allied Bakeries volumes remained strong but pricing and margins remain challenging."On 21 November 2016 we completed the sale of the US herbs and spices business for a gross cash consideration of $367m and the assumption by the purchaser of net pension liabilities which at the last year end amounted to $17m."Tax of some $100m will be payable on the transaction in the current year."Finally, revenue at AB Agri was higher than last year with progress made in all of its businesses.AB Mauri and ABF Ingredients both achieved good revenue growth, the board said, with margin again showing substantial improvement."Our outlook is unchanged with progress expected in adjusted operating profit and adjusted earnings for the group for the full year."Analysts at RBC Capital Markets were impressed by sugar sales and expect Primark to outperform the market in 2017.On valuation they noted: "The implied valuation of Primark has fallen by circa 15 p/e points this year, which has created a long-term buying opportunity in ABF, in our view."We expect Primark to reassure on its longer-term sales potential during the course of 2017 as we view it as a best-in-class discounter with a relatively scarce international rollout story."Jefferies analysts said the shares were down due to disappointment about "the lack of return to like-for-like growth at Primark... even if largely linked to Europe self cannibalisation".