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Associated British Foods (first half earnings 19 April)
The engine of growth for Associated British Foods (ABF) has long been Primark. Now after recent data on wage growth has confirmed that UK shoppers’ pay packets are shrinking in real terms, we could see a boost for the cheaper end of the market, with Primark being a beneficiary. Total retail sales volumes were down 1.4% in the three months to February, and inflationary pressures could push this yet lower. Primark’s growth is not confined just to the UK. A January update said that stores in Europe and the US enjoyed strong trading in the 16 weeks to 7 January. The group remains on a forward PE of 22, which looks rather expensive and leaves it vulnerable in a broader market correction, but longer-term the growth potential looks healthy.
The technical picture is less compelling from a bullish perspective, with the shares having steadily lost ground since the peak at the end of 2015, near £36. Nonetheless, 2016 and early 2017 saw the price bounce at £23.35, and a recent surge has put the price back on track to challenge the March high at £27. A break of this would clear the way to £27.50.
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