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.

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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.

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