Primark gives surprise boost to ABF finals

Primark owner Associated British Foods said full-year earnings per share advanced 6%, confounding a fashion sector wobbling due to the mild autumn and signalling stabilisation of ABF’s troublesome sugar business too.

Whilst the group, which is the world’s second-largest producer of sugar, expects profit from the refined commodity to sift away further in 2014-15, it said strong performances in its Primark discount fashion chain and grocery business would offset sugar weakness.

With ABF noting it expected Primark’s expansion to continue, and further progress in groceries and ingredients (a large proportion of which is sugar-related), these results may the best sign yet of a floor under ABF’s recent troubles.

Another plus is that the firm this morning confounded a spate of weather-blighted earnings which have hampered the fashion sector following a warm autumn, according to the likes of Next Plc. and SuperGroup, Plc.

By contrast, ABF’s CEO, George Weston decried any recent weather impact.

“I’m really not concerned (by the weather) and we haven’t had to delay or cancel any orders,” he said in a media interview.

“Yes, there’s been an (weather) effect, but … every year you get unseasonal weather at some point.”

ABF’s balance sheet strength has not been at issue as far as I can see, even as the challenges in its ingredients business seemed to verge on chronic.

Associated British Foods quick ratio 2008-2013, source: Thomson Reuters

Still this morning, ABF has gone out of its way to stress it expects the strength of its balance sheet and strong cash generation to underpin further earnings progress.

Quick figures

Adjusted EPS 104.1p vs. 98.9p last full year
Group revenue down 3% to £12.9bn
Adjusted operating profit down 1% to £1.16bn
Dividend up 6% to 34p per share
Guidance: full-year earnings to be “ahead of the previous year”

Stock could break recent trend

These relatively robust results from a company which, after all, has announced several profit warnings in the last few years, seemed to take the market off guard.

The FTSE 100-listed stock looked set to rise at the open, judging by the pre-opening auction quoted on the London Stock Exchange.

But ABF initially dropped more than 2.5%, before eventually erasing the loss and grinding 3 percentage points into the black.

The stock still seems to be struggling with its moving averages as a first hurdle, though momentum on a very short-term basis looks promising. Today’s trading would appear to offer the best chance for weeks for the stock to break out of the downward channel it’s traded in since early July, but no guarantees, of course.

The stock traded 0.1% lower at 2669p at the time of writing.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.