Brighter times ahead at AB Foods?

Despite a sharp decline in AB Foods (ABF)’s half-year headline profit, the adjusted figure is far less painful as continued pressure on the Sugar business is more than offset by stronger contributions elsewhere.

In particular, improving fortunes within Grocery (23% of revenues) and Primark (47%) have cushioned the blow of the underperformance of Sugar, where lower EU prices and a societal shift towards healthier products have weighed heavily.

For Primark, market share and operating margin continue to grow, helped along by increased selling space, whilst hopes for success in the US remain buoyant. Group revenues generally have increased and, importantly, guidance for the full year outlook remains unchanged.

  • London market open: FTSE 100 lower as pound surges ahead of UK data

Less positively, there has been a general markdown in clothing retailers of late, whilst the more recent strength of sterling will tend to work against AB Foods, where 63% of revenues come from abroad.

Pressure on the sugar business is more than likely to persist, but at 13% of revenues this shortfall should be containable. Meanwhile, although the dividend has been nudged higher, a prospective yield of 1.7% is pedestrian.

Source: interactive investor              Past performance is not a guide to future performance

In all, these are difficult times for the company and the 23% decline in the share price over the last six months is testament to the variously challenging environments.

Over the last year, the performance is rather better, with an AB Foods price decline of just 1% comparing to a 1.8% fall for the wider FTSE 100 (UKX).

Neither of these factors has dampened enthusiasm for the stock, though, with the current market consensus of the shares as a ‘strong buy’ being a reflection of potentially brighter times ahead.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company’s or index name highlighted in the article.