Everything's sweet at AB Foods

8th Jul 2010 07:02

AB Foods is on course to deliver "very good progress" on earnings for the year after its Silver Spoon sugar business and discount clothes chain Primark put in a solid performance during the third quarter.Revenue in the 16 weeks to 19 June is up 13%, aided by a 44% surge in sugar revenues and 15% increase at the retail business. It's up 14% for the first 40 weeks of the financial year."The weakness of sterling continued to benefit the translation of group revenues from continuing businesses which were 9% ahead at constant currency, again in line with the half year," said the firm.Sugar received a boost from the inclusion of Azucarera, bought in April 2009, but still boasted a 16% jump without the new business. Year-to-date sales are also up 44%, or 12% excluding Azucarera.Primark continued its "excellent" year, with Spain doing particularly well. Sales are up 17% in the year so far, driven by an increase in retail selling space and further like-for-like sales growth. "Operating margins for the second half of the year have been strong and the margin for the full year is now expected to be ahead of that achieved last year with the benefit from increased volumes more than offsetting higher freight charges and the effect of adverse currency movements on supply costs," AB said. Primark now has 198 stores after opening new ones in Chester and over in Barcelona since the half-year, and plans another two in Spain, two in the UK and one in Ireland before the year-end.Broker comment has been mixed though. Panmure Gordon keeps its 'buy' rating with £10.60 target price and nudges up its 2010 profit forecasts from £790m to £795m."The risk to forecasts remains on the upside," Panmure analyst Graham Jones said in a note to clients.But Jeremy Batstone-Carr over at Charles Stanley says the update is "insufficient" to generate estimate upgrades as it had already been anticipated by the market. "AB Foods shares trade off 13.2x estimated 2011 earnings and we maintain our 'reduce' recommendation on valuation grounds," he said.